This paper seeks to develop a basic analytical framework that can be used to trace the environmental impacts of macroeconomic policies, and especially to identify where unforeseen negative environmental effects may occur and design remedial measures. The framework is based on a formal mathematical model which shows the second-best nature of macroeconomic policies in the presence of environmental externalities. The model confirms the empirically observed and intuitively appealing conclusion that it is the combination of macroeconomic policies and subsidiary imperfections (policy, market or institutional), rather than macroeconomic policies alone, that leads to environmental degradation. Several illustrative examples are presented from case studies in selected developing countries.

The paper analyzes the conflict between illegal and legal exploitation of wildlife species in an East African context. In the model there are two agents, an agency managing a national park of fixed area and a group of local people living in the vicinity of the park. The park agency has the legal right to exploit the wildlife, while the local people hunt illegally. Because of the property rights, the park agency has incentives to invest in the stock of wildlife, while the behaviour of the local people is steered by short-term considerations. The model is analyzed in two steps. Firstly, the market solution is studied. Next, the model is examined when user and property rights are given to the local people.

Since the beginning of the 1980s the Bretton Woods institutions (World Bank and International Monetary Fund) have introduced structural adjustment loans and stabilization programmes to correct balance-of-payments distortions and to realize the conditions necessary for economic growth in developing countries. In the course of the 1980s, the concept of sustainable development was launched which asked for a qualitatively different orientation of growth. This paper presents a summary of what has been learned with respect to the relationship between Bretton Woods intervention programmes and development. Adjustment programmes appear to have evolved through three different stages, with attention for environmental aspects of sustainable development emerging in the third stage. A sectoral analysis is presented of the possible environmental impacts of the various components of intervention programmes. Recommendations are made regarding possible improvements of WB and IMF adjustment strategies in the light of sustainable development, without fully translating them into actual changes at the level of specific programmes.

This paper uses panel analyses to estimate relationships for agricultural planted area and beef cattle numbers at the state level in Mexico during the period 1970–85, in order to determine the main factors affecting forest land conversion. Of the key policy variables, maize and fertilizer prices appear to be the main influences on the expansion of planted area, whereas beef prices and credit disbursement influence cattle numbers. Population growth also affects both livestock and agricultural activities, and income per capita is positively correlated with cattle expansion. These estimated relationships are used to examine the effects both of agricultural and livestock sectoral policy changes and of trade liberalization in Mexico resulting from the North American Free Trade Agreement (NAFTA). To avoid any unintended impacts of NAFTA on deforestation, it may be necessary for Mexico to make complementary investments in land improvements, especially for existing cultivation on rainfed land.

A number of international conservation donors support efforts to encourage conservation indirectly by subsidizing commercial activities. Such plans beg two questions. First, if commercial ventures are expected to be profitable, why is external financing necessary for their initiation? Second, if commercial ventures are not expected to be profitable, could not greater incentives for conservation be generated by making direct payments? We examine these questions in detail. While we find that the practical impediments to instituting a direct payment programme may be substantial, the practical impediments to instituting any effective conservation programme may be substantial. On balance, there is a strong case to be made for greater experimentation with direct payment schemes than heretofore.