Environment versus economy: local communities find economic benefits from living next to conservation areas

Jeremy Hance
mongabay.com
June 12, 2011



 Forest temple in protected area in Thailand. Photo by: Katharine Sims.
Forest temple in protected area in Thailand. Photo by: Katharine Sims.

While few would question that conserving a certain percentage of land or water is good for society overall, it has long been believed that protected areas economically impoverish, rather than enrich, communities living adjacent to them. Many communities worldwide have protested against the establishment of conservation areas near them, fearing that less access and increased regulations would imperil their livelihoods. However, a surprising study overturns the common wisdom: showing that, at least in Thailand and Costa Rica, protected areas actually boost local economies and decrease poverty.

"Protected areas can help local economies by attracting tourists who spend money in nearby communities, by protecting ecosystem services (such as water provision, flood protection, generation of non-timber forest products) which increase productivity, or through improved infrastructure and institutional development. However, protected areas also impose costs by restricting access to land and natural resources. So the question is whether the benefits actually have or have not outweighed the costs at the local level," explains Katharine Sims, the author of a study which appeared last year in the Journal of Environmental Economics and Management and a co-author of a related study in the Proceedings of the National Academy of Sciences.

 Entrance sign for Chiang Dao Wildlife Sanctuary. Photo by: Katharine Sims.
Entrance sign for Chiang Dao Wildlife Sanctuary. Photo by: Katharine Sims.
In these case studies, the researchers found that in fact living near a protected area was on average a benefit: in Thailand poverty headcount dropped by 8 percent and in Costa Rica poverty was reduced by 10 percent. Sims notes that "[this] doesn't mean every community was better off. Some may have had very high opportunity costs of lost resource use or were not able to develop alternate sources of tourism income."

So, why are these findings different from past studies, according to Sims?

"Much of the conventional wisdom that protected areas will lead to greater poverty is driven by obvious correlations between protected areas and poverty. These correlations hold up in both Thailand and Costa Rica: communities with more land in protected areas are substantially poorer than regional averages. […] But we have to be careful because correlation does not imply causation: protected areas have usually been located further from cities and in areas with rugged terrain and lower agricultural potential, so it is not surprising that they are associated with poverty," says Sims, who compared test communities to similarly situated communities in the country, instead of overall national or regional averages.

She adds that Costa Rica and Thailand have both succeeded in creating extensive protected area networks with an eye toward eco-tourism. Down the road, the REDD program and other ecosystem services payments could further benefit communities.

However, she warns that people should not take the studies' findings too far.

"My opinion is that we should not think about environmental protection as a tool for poverty alleviation, but rather to remember that we tend to overestimate the costs of environmental protection because we underestimate human adaptability and ingenuity," says Sims. "This lesson has been learned repeatedly in the US context: four decades ago there was major opposition to the restrictions imposed by the Clean Air Act, the Clean Water Act, the Endangered Species Act, etc. on the grounds that this would bring the U.S. economy to a standstill. These regulations have not been costless but it is clear that they have dramatically improved our health and environment."

In a June 2011 interview Katharine Sims discussed the economic benefits for communities living near protected areas, the differing worldviews of environmentalists and economists, and the limitations of measuring a society's success solely on GDP.



INTERVIEW WITH KATHARINE SIMS

Mongabay: What is your background?

 Katharine Sims. Photo courtesy of Katharine Sims.
Katharine Sims. Photo courtesy of Katharine Sims.
Katharine Sims: My research explores the economics of land conservation policies, including protected areas, local land-use regulations, and payments for ecosystem services. I have an interdisciplinary background: I did my graduate work in environmental economics at Harvard (Ph.D. 2008; MA 2005: Political Economy and Government program).

Prior to graduate school, I worked as a researcher for non-profit and business organizations in the field of socially responsible investing/shareholder activism and I taught science in Chiang Mai, Thailand. My undergraduate degree is from Princeton in Ecology and Evolutionary Biology (B.A. 1998).



PROTECTED AREAS AND ECONOMY

Mongabay: Your papers find that protected areas may actually alleviate poverty. How?

Katharine Sims: The goal of the research was to find out whether over the medium to long term, communities with more land in protected areas had been helped or harmed by that environmental protection.

 Guest house sign attracting tourists in Thailand. Photo by: Katharine Sims.
Guest house sign attracting tourists in Thailand. Photo by: Katharine Sims.
Protected areas can help local economies by attracting tourists who spend money in nearby communities, by protecting ecosystem services (such as water provision, flood protection, generation of non-timber forest products) which increase productivity, or through improved infrastructure and institutional development. However, protected areas also impose costs by restricting access to land and natural resources. So the question is whether the benefits actually have or have not outweighed the costs at the local level.

To try to answer this question, I collected data on protected area locations and local-level indicators of material well-being in Thailand and worked with researchers who did the same for Costa Rica. We also collected information on numerous other characteristics that might be determinants of both poverty and the locations of protected areas. We needed to try to control for these other factors in order to ascertain whether communities near protected areas were poor because of protected area policies or simply because of their location. The two studies used a variety of statistical techniques (matching, multiple regression analysis, instrumental variables) to answer this question. We found that protected areas appear to have actually improved economic indicators in nearby communities.

Mongabay: How much economic improvement was seen in these local communities?

Katharine Sims: In Thailand, economic outcomes were measured using poverty headcount ratios (the number of households below a defined poverty line) and average household consumption for each locality. In Costa Rica we used a poverty index for each census tract. In Thailand we found an approximately 8 percentage point decrease in the poverty headcount ratio, which is approximately a 30% reduction in the average headcount ratio of non-protected communities. I also found an increase of approximately 12% in average household consumption levels (in the JEEM paper). In Costa Rica, the results suggest that a 10% reduction in the poverty index could be attributed to the protected areas.

Mongabay: Were you surprised by these findings?

Katharine Sims: Yes, I was surprised by the findings because the conventional wisdom is that protected areas will harm local development opportunities by restricting use of resources. In Thailand there has often been grassroots opposition to new or expanded protected areas and other studies have found that community members perceive that protected areas have made them worse off. So our finding that protected areas improved material economic indicators, at least on average, does contradict this conventional wisdom. (Of course, from a theoretical standpoint, the results are not surprising, since previous research has argued that the benefits from protected areas could in theory be large enough to outweigh the costs at the local level.)

Mongabay: What have past studies done poorly when linking protected areas to worsening poverty?

 Ziplining is a popular tourist activist in Costa Rica. Here tourists zipline near Arenal National Park. Photo by: Katharine Sims.
Ziplining is a popular tourist activist in Costa Rica. Here tourists zipline near Arenal National Park. Photo by: Katharine Sims.
Katharine Sims: Past studies have been limited by a lack of data on quantitative and comparable indicators of poverty at the local level and by the difficulty of controlling for confounding factors. Much of the conventional wisdom that protected areas will lead to greater poverty is driven by obvious correlations between protected areas and poverty. These correlations hold up in both Thailand and Costa Rica: communities with more land in protected areas are substantially poorer than regional averages. Anyone visiting these communities and making a mental comparison with communities near cities or on very good agricultural land will see more poverty near protected areas. But we have to be careful because correlation does not imply causation: protected areas have usually been located further from cities and in areas with rugged terrain and lower agricultural potential, so it is not surprising that they are associated with poverty. It is important to make fair comparisons: how have communities with more land in protected fared, compared to other communities with similar development potential?

Mongabay: Down the road could these communities further benefit from carbon credits, the REDD program, or biodiversity and other 'ecosystem service' payments?

 Tourist bungalows in Thailand. Photo by: Katharine Sims.
Tourist bungalows in Thailand. Photo by: Katharine Sims.
Katharine Sims: Yes, I hope that communities could benefit from these compensation mechanisms. There are many global biodiversity and carbon sequestration benefits of these protected areas and local communities could be compensated for their stewardship and provision of these benefits through carbon credits or payments for ecosystem services. Although communities might have benefitted on average from protected areas, that doesn't mean every community was better off. Some may have had very high opportunity costs of lost resource use or were not able to develop alternate sources of tourism income—so additional payments would be helpful. However, one obstacle to payments in Thailand is that land rights, particularly for ethnic minority communities, are not clearly established. This is a problem in many countries and there are ongoing efforts in current REDD negotiations to safeguard the rights of land users who may not have formal title.

Costa Rica and Mexico are two great examples of countries which are currently experimenting with payments for ecosystem services programs and these are likely to become part of REDD programs in the future. (For more information on Mexico's program, check out the Mexican National Forestry Commission: http://www.conafor.gob.mx/portal/index.php/proarbol )

Mongabay: What have Thailand and Costa Rica done right? What could other nations learn from these models?

Katharine Sims: Costa Rica and Thailand were two of the first middle-income countries to invest heavily in their protected area systems as well as develop with tourists in mind, and these strategies have clearly paid off. Of course, there is always the question of whether international tourism is a "sustainable" means of economic growth—but one trend that has been encouraging is the increasing amount of domestic tourism within the two countries as well. Both countries have also invested heavily in technical expertise, including in remote-sensing systems to monitor deforestation and in park management, and more broadly in good national data collection systems.

It will always be tempting for countries (including our own!) to cut budgets for environmental protection in the wake of economic or political crisis. It is my hope that more countries will be able to take the long-term view and continue making substantial investments to protect resources for the future.



THE COST OF CONSERVATION

 Costa Rica scenery with a tourist boat in the background.
Costa Rica scenery with a tourist boat in the background. Photo by: Katharine Sims.



Mongabay: What are the economic costs usually attributed to conservation?

Katharine Sims: We usually think about the cost of conservation in terms of "opportunity cost": i.e. the possible benefits from using a resource that are given up when it is protected. For instance, if we set aside land for a park in the U.S., the opportunity costs might be from forgone agricultural production, forgone residential or commercial use of the land or forgone extraction of natural resources (minerals/timber/oil/gas/coal). There is also an administrative cost to setting up and maintaining protected areas, but usually administrative costs are smaller than the opportunity costs.

Mongabay: Is there any assurance that the economic wealth of not establishing a protected area—i.e. allowing agriculture, mining, logging, etc.—would actually uplift local communities?

Katharine Sims: There is a perennial debate in the economics literature about whether resource exploitation is a good or bad strategy for long-term economic growth and whether it benefits local communities. This is an ongoing debate and the empirical evidence is mixed (see for example a classic articles by Sachs and Warner 2001: "The Curse of Natural Resources" in the European Economic Review; also Ross 1999: "The Political Economy of the Resource Curse" in World Politics). Economic theory suggests that if the scarcity rents (or profits) from resource extraction are reinvested in ways that will improve future growth—such as in human capital (better education) and technology improvements, then resource use can lead to sustained growth over time. However it is clear that in reality this has rarely happened—and there are countless instances of rapid resource depletion which have left impoverished communities in their wake.



ECONOMY AND ENVIRONMENT

 Items for sale to tourists in Thailand. Photo by: Katharine Sims.
Items for sale to tourists in Thailand. Photo by: Katharine Sims.



Mongabay: Economists and environmentalists are often placed in opposing camps. Why do you think this is?

Katharine Sims: I think economists and environmentalists have fundamentally different mental models of technological progress, human behavior, and valuation. Economists tend to be great optimists that technological innovation will overcome environmental limits while environmentalists are much more skeptical that we will be able to find substitutes for our natural capital assets (so environmentalists tend to be much more wary of using and degrading our resources). On the other hand, economists are great pessimists about human behavior towards the environment (generally assuming selfish motives) while environmentalists are often more optimistic that people can be educated to care about the greater good. This is perhaps ironic because models which assume people are selfish tend to imply a greater need for environmental regulation!

The other major difference is that economic value is by definition based on tradeoffs people are willing to make and so is anthropocentric in nature. Environmentalists often espouse a broader view of valuation (as do many environmental economists—after all, we don't have to sign some kind of pledge committing us only to think about the economic definition of value). All of these different world views lead economists and environmentalists to misunderstand each other, and often to promote different types of policy responses based on their mental models.

Mongabay: Is protecting the environment, whether through conservation or stricter regulations, actually good for the economy?

 Mountain scenery in Wildlife Sanctuary in Thailand. Photo by: Katharine Sims.
Mountain scenery in Wildlife Sanctuary in Thailand. Photo by: Katharine Sims.
Katharine Sims: Well, I think the first important question to ask is what do we mean by "good for the economy"? GDP, which is the most commonly used measure, is based on economic output—i.e. the amount of goods and services produced each year. But as we know, it fails to value a lot of things which are important. If air or water quality improve in a given year, that won't show up in GDP (in fact, there might be a decrease in GDP as fewer people seek health care related to that pollution). If we use up part of our stock of natural capital, which is our environmental wealth, that doesn't show up in GDP. So many of our environmental regulations likely make us better off as a society, but they are not going to show up positively in GDP numbers. We often hesitate to pass (or at this point maintain) environmental legislation because we focus only on the costs of that regulation. That is misguided, because we are focusing only on one side of the equation which is easily measured, and not taking into account the possible benefits.

I think there is an encouraging lesson from our research on protected areas, which is that economies are often more resilient than we think and can respond in surprising ways. That is one of the advantages of market structures—they are flexible and adaptable to changes.

However, our study does not suggest that protected areas are a get rich quick scheme! My opinion is that we should not think about environmental protection as a tool for poverty alleviation, but rather to remember that we tend to overestimate the costs of environmental protection because we underestimate human adaptability and ingenuity. This lesson has been learned repeatedly in the US context: four decades ago there was major opposition to the restrictions imposed by the Clean Air Act, the Clean Water Act, the Endangered Species Act, etc. on the grounds that this would bring the U.S. economy to a standstill. These regulations have not been costless but it is clear that they have dramatically improved our health and environment and we have continued to see robust economic growth. So I think the broader message here is not that there are no costs to environmental regulation; it’s just that the costs are often smaller than we perceive or expect, and we should compare them to the benefits gained by current and future generations.

Mongabay: Do you think economics should be restructured to consider the loss or gain of ecosystem services in development projects?

  Stairs to forest temple in Thailand. Photo by: Katharine Sims.
Stairs to forest temple in Thailand. Photo by: Katharine Sims.
Katharine Sims: I definitely think that the environmental impacts of development projects should be taken into account when making decisions. This isn't a problem with economics per se, just how the costs and benefits of a proposed project are being measured. Many times environmental impacts are not thought about simply because they are very difficult to measure. We definitely need more research to understand what the environmental impacts of development projects are. (And in fact, in another working paper, we have been trying to make this point with respect to the possible deforestation impacts of a poverty alleviation program in Mexico. See: " The Ecological Footprint of Poverty Alleviation .

Mongabay: Where do studies like this go next?

Katharine Sims: Well, this research suggested that the benefits of protection for local economies have outweighed the costs, so that in net, wealth has increased. But we would like to better understand what benefits are driving this result.

One hypothesis is that communities have benefitted from an increase in tourism. Both Thailand and Costa Rica have significant numbers of international and domestic tourists and the income from tourism activities or corresponding infrastructure investments (roads, electricity, etc.) might have stimulated local economies. An alternate hypothesis is that environmental protection has safeguarded the flow of ecosystem services such as watershed protection or pollination—possibly helping local agriculture—or has improved the generation of valuable renewable forest products. We hope more work will be done to explore these possible mechanisms and make the results more useful for protected area designers or managers.

We are also hoping that the methodology will be used to see if results are similar in other countries. Knowing more about how to make protected areas work for local communities would be helpful for future reserve planners.













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CITATION:
Jeremy Hance
mongabay.com (June 12, 2011).

Environment versus economy: local communities find economic benefits from living next to conservation areas.

http://news.mongabay.com/2011/0612-hance_sims.html