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Environmental indicesand public policy: asystems perspective onimpact assessment anddevelopment planningGerhardus Schultink aa Michigan State University, Departmentof Resource Development , 320 NaturalResources, East Lansing, MI, 48824–1222, USAPublished online: 24 Feb 2007.

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Intern. J. Environ. Studies, 1999, Vol. 56, pp. 237-258Reprints available directly from the publisherPhotocopying permitted by license only

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ENVIRONMENTAL INDICES AND PUBLICPOLICY: A SYSTEMS PERSPECTIVE

ON IMPACT ASSESSMENTAND DEVELOPMENT PLANNING

GERHARDUS SCHULTINK

Michigan State University, Department of Resource Development,320 Natural Resources, East Lansing, MI 48824-1222 (USA)

(Received in final form 6 November 1997)

Environmental indicators and derived biophysical and socioeconomic indices definedevelopment potential and environmental constraints and are instrumental in identifyingenvironmental impacts and potential solutions. Specifically, bio-physical indices arecritical in the identification, evaluation, selection, and implementation of sustainable,problem-solving development strategies.

It is stressed that the relevancy and effectiveness of public policies depend on adequateproblem identification using representative diagnostic or need indicators to define thenature and magnitude of environmental problems. In contrast, prescriptive oropportunity indicators are used to derive action alternatives and information for decisionanalysis, forecasting and policy analysis.

In this context, the role of base line studies and indicators that define the supply anddemand of natural resources is discussed. This includes the description of the currentstatus of the resource base, current and potential uses, and environmental impacts. Keythematic indicators are suggested which are especially useful in describing environmentalproblems, development alternatives and impacts.

Examples are introduced of principal indicators that prove effective in a)environmental assessment and identification of policy concerns and, b) economicdevelopment potential and alternative strategies. Their combined use is critical inselecting development strategies that are both economically viable and environmentallysustainable.

The notion of comparative site indices is introduced to stress the importance of thespatial and temporal dimension in resource inventories and environmental assessments,and enhance information content for public policy formulation, which is focused andeffective.

Keywords: Public policy; environmental indices; impact assessment; developmentplanning

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238 G. SCHULTINK

I. INTRODUCTION

The primary goal of environmental assessment, in the context ofpublic development policy, is to maintain or improve the quality-of-life by the evaluation and implementation of sustainable developmentalternatives that reflect both environmental constraints and oppor-tunities. Here, sustainable development means the promotion ofdevelopment policies using carefully defined objectives that aim toachieve a sustainable flow of goods and services that enhance quality-of-life. More precisely, sustainable development must ensure thatpublic policies are based on the selection of development alter-natives, which are both biologically sustainable and economicallyviable. As such, sustainable development policy may be defined asthe development and management of environmental resources to ensureor enhance the long-term productive capacity of the resource base withthe goal to improve long-term societal wealth and well-being. There-fore, the principal goal of development policy is to create a betterplace to live-more capable, productive and efficient in meetingprimary (food, shelter, etc.), secondary (e.g., health care, educationalopportunities) or tertiary human needs (e.g., environmental qualityand amenities).

Development, by definition, is a process of environmental modifica-tion and adaptation. It involves interactions between the resource basesystem, comprising the resource base of renewable and non-renewableresources, and the resource use systems, representing country-specific,land and water use alternatives and public and private land use choicesthat generate complex sets of goods and services, including environ-mental impacts.

The selection of these land use types is guided by both public policyand private interests (Fig. 1).

Public interests largely reflect the long-term environmental steward-ship principle that includes public interests in resource conservationand environmental quality. Private interests largely reflect more short-term economic interests that are directly affected by ownership rights,laws and regulations. In this regard, the goal of public land use policyis to formulate multi-jurisdictional, resource policy systems thatinclude the institutional controls and capacity to:

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ENVIRONMENTAL INDICES 239

RESOURCE POLICY SYSTEMSAGGREGATE SOCIOECONOMIC PERFORMANCE INDICATORSLAND USE SELECTION BASED ON SOCIOECONOMIC PERFORMANCEAND ENVIRONMENTAL CAPACITY AND QUALITY INDICATORSPOLICY IMPLEMENTATION THROUGH SELECTIVE DEVELOPMENTSTRATEGIES, INCENTIVES, LAND USE PLANS AND CONTROLS

NATURALRESOURCESYSTEMBio-physicaldiagnostic andprescriptiveindicators:ecological resourcebase productioncapacities andconstraints

AGRO-ECOLOGICALZONES -homogeneousproduction zonesreflecting soil,climate andtopographicindicators(moistureregimes)

LAND USESYSTEMSLand Use Types(LUTs) evaluated onthe basis of resourcecapacity and socio-economic performanceand prognosticindicators -developmentguidelines

FIGURE 1 Major system linkages of resource assessment, land evaluation, economicdevelopment planning and land use policy formulation.

a) Identify the comparative advantage of resource use opportunities(e.g., resource endowment, use capacity and use efficiencies) in thecontext of environmental constraints (e.g., carrying capacity andresource depletion rates)-the resource evaluation framework

b) Evolve guidelines and decision-support systems to evaluate publicand private sector benefits (e.g., benefit/cost, benefit/risk) of landuse alternatives and associated environmental impacts - the policyanalysis framework

c) Development implementation and evaluation through effectivedevelopment strategies, land use plans, laws and regulations, andperformance monitoring - the policy implementation framework.

In general, public development policy attempts to guide theidentification and selection of "best resource use" options reflectingboth public land use alternatives and the aggregate socioeconomic andenvironmental impacts of private land use choices. It aims to mobilizethe production of goods and services as resource outputs to meetsocietal needs and to improve resource productivity, input andmanagement efficiency, while attempting to optimize product distribu-tion and availability.

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240 G. SCHULTINK

Environmental assessment, in this context, is a systematic process offact finding, interpretation and identification of development alter-natives and associated impacts. This process is by nature holistic andmultidisciplinary, reflecting the best fundamental understanding of thestructure and dynamics of ecosystems and the linkages among acomplex set of biotic and abiotic factors.

Sustainable development fundamentally reflects this understandingand, thereby, the perceived opportunities and environmental limits,providing guidelines for improved decision-making, environmentalmanagement and development planning. This understanding is neverabsolute, lacking, among other things, essential knowledge aboutcomplex ecological relationships, complicated by spatial and temporalinaccuracies, affected by adaptive impacts and policy changes, andfurther influenced by changing valuations of public benefits, costs andrisks.

To effectively challenge this decision-making complexity, a systemsapproach to economic development and environmental assessment issuggested, that is:

a) Issue-oriented to improve our ability to identify the qualitative andquantitative dimensions of the problem(s),

b) Diagnostic in its analytical approach to identify potential solutionsthat are sustainable and economically viable, and

c) Problem solving by providing the minimum information needed tomake informed decisions.

II. ENVIRONMENTAL INFORMATION, INDICES,INDICATORS AND PUBLIC POLICY

One of the most significant challenges of contemporary society is toderive cost-effective information that is thematically, spatially andtemporally relevant in supporting effective policy analysis and decisionmaking. Beyond the traditionally data quality standards of precisionand accuracy, it is important to identify the MINIMUM informationcontent necessary to cost effectively, support informed decision making.It can be argued that any redundant information constitutes inefficientuse of human and fiscal resources.

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ENVIRONMENTAL INDICES 241

In the process of information compilation, a distinction has to bemade with regards to the sequence and characteristics of data captureanalysis and information distributions. This process is illustrated,below (Fig. 2). It is especially important to differentiate among thevarious information compilation steps, namely:

• The use of qualitative and quantitative problem or need indicatorsin the problem identification stage;

• The problem-oriented fact finding involving the use of primary andsecondary data sets compiled in a spatially referenced informationsystem (GIS), linked with analytical models;

DECISION MAKINGAND POLICYIMPLEMENTATION

INDICATORS - prescriptive• intervention Opportunities• Planning Guidelines• Land Suitability• Comparative Advantage• Sustainability• Carrying Capacity

ENVIRONMENTAL ASSESSMENT APPROACHESAND IMPACTS ASSESSMENT MODELS (thematicexamples)• Crop Productivity• Climate Change• Air Quality• Water Quality• Biodiversity• Urban Quality• Soil Degradation• Coastal Zone Management• Wildlife Management

COMPREHENSIVE DATA BASE COMPILATION• Environmental Information System (GIS)

I • Primary Data Capture• Secondary Data Capture

PROBLEM IDENTIFICATION• Problem Indicators• Need Indicators

FIGURE 2 Hierarchical information flow and use of basic data, indicators and indicesin environmental planning and public policy formulation (connecting arrow size signifiesrelative information content).

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• The compilation of single indicators or composite prescriptiveindices that identify potential solutions and alternative, problemsolving approaches

• The selection of alternatives based on composite performanceindices reflecting planning objectives, public policy preferences, andaggregate impact considerations affecting the quality-of-life.

In this process, the compilation of a comparative site index should beconsidered, which reflect clearly denned spatial preferences of land usealternatives over time. Schultink [1] describes the use of this com-parative site index in site suitability analysis and the selection ofdevelopment alternatives. It may be used to quantify the public utilityof certain land use choices by location and over time.

III. A SYSTEMS APPROACH TO PROBLEMIDENTIFICATION, ENVIRONMENTALASSESSMENT AND DECISION-MAKING

Holling [2] discusses some of the myths and realities of environmentalmanagement and assessment. One of the most significant observationsin his book is that environmental assessment is carried out in adynamic context, full of complexity and uncertainty. In the changingworld of development programs, program modifications take place asthe result of change of public goals and priorities, a more completeunderstanding of problems and causal effects, additional public andprivate investments, incomplete understanding of complex impactsand the reality of decision-making with uncertainty and selective risk-taking. Although these observations exemplify the public policychallenges, some of these challenges can be overcome by reducinguncertainty and risk through knowledge improvement. This includesthe understanding of the facts, including base line environmentalconditions, current use trends and impacts, and relevant assessmentpractices and models.

Such a holistic approach to problem solving helps to define theessential properties and functions of ecological or environmentalsystems in the form of models and representative indices. The purposeof comprehensive resource inventory and evaluation is to generate

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ENVIRONMENTAL INDICES 243

information that may assist us to:

• Generate relevant resource status, use and prognostic indicators• Identify the nature and dimension of environmental problems and

issues• Generate a range of problem-solving objectives and potential

solutions• Evaluate impacts of alternative problem-solving strategies• Screen, identify and communicate proposed solutions and policies• Monitor effects of program implementation

A. The Role of Base Line Studies, Use Trends,and Diagnostic Indicators

Base line studies or resource inventories represent the first phase ofeconomic development planning and project assessment. The inven-tory identifies the status of principal components of the four ecosystemcomponents - soil, water, plants and wildlife, as well as non-renewableresources such as minerals, but also identifies current land cover/usepatterns and trends. Most base line studies define the bio-physicalparameters of the resource base and, therefore, may be used to derivecomposite biological productivity indices. Examples include wetlandecosystem productivity or agricultural productivity of certain agro-ecological zones. For instance, a comparative crop productivity indexmay be derived, using a combination of soil types (e.g., texturalclasses), climate parameters (soil water balance) and topography(impacts on surface recharge and evapotranspiration) to depict relativeproduction (moisture) constraints by agro-ecological zones or admin-istrative district. In the case of food security concerns, this provides anexample of a diagnostic (problem) index, which may be used toidentify the comparative advantage of alternative locations to meetnational or regional food production needs. Similarly, current useintensity and trends may be used to identify potential conflicts, nowand in the future, where existing carrying capacity may be exceeded orwhere harvest/depletion rates exceed reproductive capacity. Adiagnostic demand analysis framework, including some relevantdiagnostic indices, is suggested (Fig. 3) to systematically identifydecrepancies between resource supply and demand and environmentalimpacts based on current and projected use rates.

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RESOURCE CAPACITY ANDSUPPLYSOIL RESOURCESSoil physical and chemical propertiesUse-specific carrying capacity index (e.g.range land)Soil erosion risk index (wind and waler)Crop-specific productivity indexUse-specific suitability indicesSoil degradation indicesAOUATIC RESOURCESAquatic Ecosystem properties (biotic and abiotic)Waler quality indices.(organic and inorganic)Eutrophication indexWetland resources and productivity indicesAquifer vulnerability and recharge indicesSurface and subsurface supply and cost

Ecosystem classes and productivity indicesVegetation association and biomass productivityindicesBiodiversity indices (species)Genetic resource indices (biomedical)WILDLIFE RESOURCESEcosystem and carrying capacity indicesSpecies, environment and human resourcecompetition indices

4 1

RESOURCE DEMANDCURRENT LAND COVER/USECurrent Land Cover and UsePOPULATION DENSITYCensus by administrative district and agro-ecological zoneHUMAN POPULATION PROJECTIONSRegional birth and death indices and trendsRegional migration indices and trendsWILDLIFE POPULATION DENSITY ANDPROJECTIONSSpecies density by ecosystem, watershed andhuman-defined administrative units.

TEMPORAL AND SPATIALDIAGNOSTIC ANALYSIS:Resource Status, Depletion Rates, ProjectedQuality, Physical and Economic Scarcity by• agro-ecological zone• watershed• ecosystem• political or administrative district• planning unit

FIGURE 3 Resource demand analysis framework with relevant diagnostic indices.

The goal of the aggregate diagnostic analysis is to derivequantitative or qualitative indicators that are effective in defining thenature of the resource problem or the environmental policy issues.Because most environmental issues are complex and involve varioussets of problems and issues, it is useful to identify selective problemissues and problem-solving scenarios based on potential interventionopportunities and problem solving strategies. An example of scenarioanalysis is identified below (Fig. 4). It comprises three sets of indicatorsor composite indices. They include:

a) Diagnostic or need indicators, which are used to describe problemcharacteristics in qualitative and quantitative terms (e.g., compositethematic indices such as soil degradation and resource depletionindices, or specific problem indicators such as nitrate levels) andmay be used to outline general intervention needs;

b) Opportunity or prescriptive indicators which may be used tospecifically identify and evaluate alternative solutions (e.g., changesin food crops or farm management practices) using a series ofconnecting, problem-solving approaches (e.g., strategies, programsor plans); and

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ENVIRONMENTAL INDICES 245

CURRENT ISSUEOR PROBLEM

diagnosticindicatorstemporal contextspatial context

DESIREDOUTCOME OR

SYSTEMSTATE(Measurableperformanceindicators)Action C

(Opportunity

FIGURE 4 Illustration of scenario analysis including a systematic identification of aresource problem (diagnostic indicators), a series of connecting events (based on thenotion of aggregate comparative advantage and selected opportunity indicators)represented by alternative strategies and the desired outcome (measured usingperformance indicators).

c) Performance and monitoring indicators, which define the desiredoutcomes or "system state," the operational characteristics ofimplementation and its performance success using bio-physical orsocioeconomic indicators, (e.g., composite water or air qualityattainment standards or specific socioeconomic indicators such asper capita income and employment change).

B. The Monitoring Function in EnvironmentalPlanning and Policy Formulation

As pointed out by Bawden and Valentine [3], the understanding ofcomplex, real world systems involves a holistic rather than areductionist paradigm. It incorporates a hierarchical process oflearning, transitioning from the basic sciences-via applied technologyand a hard systems view (a believe that problems can be identified andobjectives clearly stated in operational and quantitative terms) - to asoft systems view (the realization that social reality and problemunderstanding emerges from personal perceptions and preferences.)The soft systems view, therefore, sees problem handling as a process oflearning, involving workable relationships and constructive discus-sions.

This systems view is most closely identified with the complexities ofenvironmental planning and policy formulation whereby problems arenot necessarily solved computationally or technically but rather by

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socioeconomic adjustments in land use patterns and use intensities,land transformations, consumptive rates and public policy. Wilson [4]refers to these complex systems as human activity systems or social andcultural systems, the former typified by purposeful activity such asindustrial production, the latter representing the interface betweennatural and human activity systems.

A fundamental analytical framework of information compilationand distribution must facilitate the process of understanding systemlinkages and the impact of transformations by public officials andplanning professional, alike. Given the time and fiscal resourceconstraints, a systematic attempt should be made to derive relevantspatial indicators that can effectively be used for problem identifica-tion, analysis, planning and monitoring. In this process, the indicatorsused in the problem identification function are very similar to thoseused in monitoring or performance evaluation. The former usesrepresentative indicators to identify the problem while the latter isdesigned to ascertain if project objectives are met by the verification ofthe relevant performance indicators (e.g., water or air qualitystandards and associated indicators). A schematic outline of thecomponents of such a monitoring function in environmental planningis described (Fig. 5).

C. Opportunity or Prescriptive Indicators

As pointed out above, opportunity indicators are prescriptive innature, providing guidelines for the identification of project orprogram alternatives that may be used in problem solving. Examplesinclude:

• Comparative advantage indicators denoting the spatial and tempor-al resource potential to produce a complex set of goods and servicesin a cost-effective and sustainable manner. These goods and servicesreflect both those that are formally traded and valued at the marketplace and non-market goods and services that render additionalpublic value, such as land and water quality and environmentalamenities.

• Land suitability indicators depicting land use-specific and landparcel-based suitability rating such as for agricultural croppingalternatives, residential or recreational development;

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ENVIRONMENTAL INDICES 247

'roblem IssuesandEnvironmentalStatus(Problem)

SpatialInformationSystem

Cost/Benefit and/or Risk Analysisusing AnalyticalModels andPrescriptiveIndicators

Project orProgramSelection UsingPerformanceIndicators

ProgramIdentificationUsing Monitoringand PerformanceIndicators

(PROBLEMDEFINITION)

PlanningObjectives

OperationalTargets andPerformanceIndicators

(DESIRED SYSTEM STATE)

Selection ofStrategies

Policy Selection andImplementation

Public Reviewand Monitoring

(PLANNING AND REVIEW SYSTEM)

(REAL-WORLD SYSTEMSVIEW USING A "SOFTSYSTEMS" APPROACH)

FIGURE 5 Schematic outline of the monitoring function related to environmentalassessment, planning and policy formulation.

• Land vulnerability indicators such as the risk of groundwatercontamination as a result of certain agricultural managementpractices or industrial contamination;

• Carrying capacity indicators as a comparative conservation measure(e.g., Animal Unit Month-expressing species-specific consumptionrates) in range management and land conservation policies throughthe regulation of livestock and wildlife grazing density; and

• Biodiversity indicators as objective measures of genetic diversityrepresented by plant and animal life habitat as a basis for theformulation of preservation policies.

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These indicators or derived composite indices are proxy measures thatmay be used to identify principles and guidelines for sustainableeconomic development in the context of environmental carryingcapacity and ecosystem constraints. In essence, these guidelinesidentify sustainable strategies for development and measure progressin achieving human welfare, assessment of resource endowment anddepletion, and the impacts of productive use on the environment(pollution) and human welfare (risk). As pointed out by Hammondet al. [5] the "framework for the use of environmental indicators arisesfrom a simple set of questions: What is happening to our environmentor natural resources? Why is it happening? What are we doing aboutit?"

D. Performance and Monitoring Indicators

Performance and monitoring indicators are primarily intended toevaluate the degree of success (or failure) in reaching developmentobjectives, measured in the form of specific standards or policy targets.In this section, several examples are introduced which attempt toillustrate the use of composite indicators in this regard. It is importantto realize that development of these indicators is not an objective initself, rather the intent is to design effective measures that can be usedto evaluate program or project performance and adjust policies andtheir implementation. The following grouping of major policy targetareas is suggested with a focus on relevant measures with respect to:

a) the status and quality of the resource base - emphasizing supply-side policy issues or supply indicators,

b) the resource capacity, use rates and trends - emphasizing demand-side policy issues or demand indicators,

c) natural and human-managed ecosystems, their relative exposureand vulnerability to human intervention and use - emphasizing lifesupport indicators, and

d) land use policy and quality of life impacts - with an specificemphasis on human exposure and risk - emphasizing impactindicators.

The following examples of aggregate indicators are provided based,in part, on Adriaanse [6] and Environment Canada [7]:

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ENVIRONMENTAL INDICES 249

• Resource Capacity and Quality. Here various composite indicatorsmay be used to define the productive status (supply, availability andquality) of renewable and non-renewable resource, including soils,minerals, air and water. For instance, the following composite enviro-nmental indicators may be used to describe air, water or soil quality:

a) Climate change - including single concentration indicators forCO2, CH4 and N2O

b) Ozone depletion - including CFC-11 and —12 emissionsc) Acidification of the environment - SOX, NOX, NH3 emissions and

concentrationsd) Eutrophication of the Environment - N, P concentrations in water

and soile) Dispersion of toxic substances - including heavy metals and

known carcinogensf) Dispersion of toxic substances indicator — pathways and dispersal

rates effecting risk,g) Generation and disposal of solid waste, andh) Composite pollution indicator - the latter a composite of 6

indicators each measured in units of environmental pressureequivalents, including environmental change, acidification, eutro-phication, toxic dispersion, waste disposal and disturbance.

• Resource Depletion. This composite indicator can be formulated forcountries and regions, measuring the ratio of resource depletion andthe gross capital formulation. It illustrates how human activities basedon natural resources production or extraction can be sustained. Thisincludes typical examples of mineral and fossil fuel extraction and alsothose of renewable resources (the supporting resource base), includingmanaged ecosystems such as agriculture, fisheries and forests, andgroundwater systems. Examples include water resource use/demandand quality, forest biomass regeneration, reforestation and harvestrates, aquatic resources including fishery stocks and harvest rates, soilsresources and degradation rates. The ratio with capital formationillustrates the value of the decline of the resource stocks (or capital)relative to the value of investments in human-made capital. This ratioidentifies sustainable use policies as those creating new fixed assetsequal to or of greater value than those depleted by resource use.

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• Ecosystem Protection and Vulnerability. This composite indicator isdesigned to represent the degree of protection that essential andcritical ecosytems are accorded through national environmentalpolicies, laws and regulations. It may reflect the type, degree andareal extent of ecosystem protection and the vulnerabilities ofecosystems and the composing species. Biodiversity, as a measureexpressing the number of species per area unit, can be used as aneffective indicator in this process. However, policies should not focussimply on this single performance indicator but rather attempt tomeasure integral ecosystem characteristics, including their functionalcapacities, connectivity and fragmentation (critical size). Vulnerabilitymust address the degree of protection through buffer zones and othermanagement practices, which may threaten the long-term viability ofecosystems.

• Environmental Impact and Risk. This composite indicator may bedefined by the development of an interaction matrix that quantifies theimpact of human activities or development actions on the environmentand the associated human exposure and risk. Rather then viewing riskas a physical health factor, it is suggested that risk in policyformulation reflects the broader view of human well-being orquality-of-life. More recently, the issue of social equity in involuntaryenvironmental risk exposure has received increased attention. Ele-ments that may be included into this assessment are water and airpollution, environmental disease vectors and their controls, occupa-tional health, food safety and traffic safety. A modified risk equation(see [1]) can be used in this process to assess the composite indicator ofenvironmental risk as:

Rn — ] P rn X pn X Vn - tn

where

r = is the expected value of the magnitude or degree of risk (expressedas social cost)

p = the exposure probability expressed as frequency or probability ofoccurrence (%) (this factor may be weighted for large impactareas where significant spatial decay of impacts is anticipated)

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ENVIRONMENTAL INDICES 251

v = the vulnerability of the target population (e.g., age and weightfactors)

/ = the potential risk reduction factor (e.g., prevention or mitigationpolicies)

n = the number of risk variable involved

IV. ECONOMIC DEVELOPMENT AND ENVIRONMENTALPLANNING: A SYNTHESIS OF OBJECTIVES

As described above, environmental planning involves the identificationof economic development potential based on resource productioncapacity and environmental constraints. Resource capacity andconstraints can often be identified using bio-physical indices describingphysical production functions, while economic development focusesprimarily on socio-economic feasibility and social benefits derived,including production efficiencies and measures of economic returns.This two-fold policy framework of environmental impact andeconomic development implies that relevant indicators should beidentified that may be used also to identify needs and opportunities.

In this section, examples of socio-economic indicators are intro-duced which may prove useful in the identification of regionaleconomic needs and opportunities.

The measures, based on Schultink and Roberts et al. [8], provide acomparative perspective for planners and policy makers on thestrengths and weaknesses of regions and on the constraints andopportunities for economic growth. Specifically, relevant indicatorsare presented that assist economic development practitioners toidentify, describe and compare a region's status with regard to itsrelative performance, risk, needs, opportunity and quality-of-life asreflected in major information categories.

In most cases, the measures permit a high degree of flexibility interms of the level of spatial and sectoral disaggregation. In addition,many of the measures presented below can be constructed foradjoining (or otherwise comparable) regions to provide an indicationof the region's relative strengths and weaknesses. The primaryconstraint in the construction and application of these measures is

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the availability of data. The measures below address the followingissues:

• Relative growth rates and recent patterns of growth• Characterization of the region's export base• Diversification of the region's economy• Linkage of the region's economy to potential export markets• Constraints on growth

A. Relative Growth Rates and Recent Patterns of Growth

Simple level changes over varying periods in employment, income,population, and establishments and the annualized rates for thesevariables are commonly used self-explanatory indicators of economicgrowth in a region. To determine if growth is accelerating or de-celerating, the following measures can be constructed:

a) Rates of change:

Let Q = [Annual Growth RateCurrent year/Average Annual GrowthRatepast 5 years]Q can be interpreted in the following way:

If Q < 1, growth is decelerating.If Q > 1, growth is accelerating.If Q = 1, growth is steady.

b) Level of change:

Let R = [Level ChangeCurrent year/Average Level ChangePast 5 years]Interpretations of R are:

If R < 1, growth is decelerating.If R > 1, growth is accelerating.If R = 1, growth is steady.

When used in comparison with other regions (or larger economicunits such as the state or nation), the measures of acceleration providea measure of relative economic performance. When constructed at thesectoral level, these measures can act as indicators of which sectors aremost likely to be drivers of economic growth.

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ENVIRONMENTAL INDICES 253

B. Characterization of the Region's Export Base

According to export-base theory, industries and firms that serve non-local demand are the drivers of regional economic growth, attractingincome into the region. Two indirect measures of the economic basethat are relatively easy to implement include the location quotientmethod and the minimum requirements method (Klosterman [9];Bendavid-Val [10]; Tiebout [11]).

The location quotient (also referred to as the coefficient oflocalization or specialization) is used to measure the degree ofspecialization of a regional economy (Bendavid-Val [10]; Klosterman[9]), as well as to estimate the size of a region's export base. The locationquotient measure is defined as the ratio of an industry's share of thelocal economy to the industry's share of the national economy, or:

LQ, = {{e>/e'T)/(E>/ElT)}

where

e- = regional employment in industry i in year te 'T = total regional employment in year tE\ = national employment in industry i in year tE'T = total national employment in year t

The location quotient is interpreted as follows:

If L Q, > 1, then the region's economic base is more specialized thanthe nation in industry i (i.e., industry i is part of the region's economicbase).

If L Qi < 1, then the region's base is less specialized than the nationin industry i (i.e., the region's production is insufficient to satisfy localdemand and thus there is not an export sector).

If L Q,:= 1, then the industry is just able to meet local need/demandand there is no basic sector activity.

Calculation of the location quotient on a sector-by-sector basisprovides a general description of the region's economy and can be usedto respond to specific requests about the region. The extent to whichany given sector is part of the export base can then be calculated by:

X = LQi ~ 1where X is the portion of industry i that belongs in the primary sector.

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An alternative method, the minimum requirements approach, differsfrom the location quotient approach in the way the level of theeconomic activity needed to meet the local requirements is estimated.The method compares an industry's local employment patterns to asample of similarly sized regions, rather than to the nation as a whole.The region with the smallest proportion of economic activity in anindustry is assumed to just satisfy local demand. Basic employment inan industry is estimated using:

bt= [(ei/e) - (e?/em))ei

where bt is the base portion of sector i in the region of interest, er, and erefer to employment in sector i and total employment in the region ofinterest, and em and eim refer to the total employment and localemployment and local employment in industry i in the minimum shareregion, m, a comparable region with the smallest employment share inindustry i (Klosterman [9]). All local employment that exceeds theindustry's share for the minimum share region is assigned to theregion's economic base. The total base economic activity in a givenregion is the sum of the base activity in all industry sectors. Thismethod also provides information about the composition of the exportbase and can be used to respond to specific requests about the region.

C. Diversification of the Region's Economy

Because regional economies that are overly dependent on a singleindustry or group of industries are more likely to be vulnerable toeconomic downturns, increasing the diversity of the regional/localeconomic base becomes an economic development objective. A diverseindustrial base is thought to promote economic stability because adownturn in one sector can either be cushioned or compensated for bygrowth or stability in another sector in the region's economy. Therationale is much like in portfolio theory: the more diversified one'sinvestment portfolio, the less vulnerable it is to wide swings in value.As a rule, the larger the economic unit, the more diverse its industrialbase; that is, national economies are more diverse than stateeconomies; state economies are more diverse than MetropolitanStatistical Area (MSA) economies; and so on. Diversity can be

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ENVIRONMENTAL INDICES 255

measured using the following formula:

D = Y,[%EMPf/%EMPf] * [#EMPf/#EMPR]

for (i = 1... n industries).One advantage of this measure is that if a region has a high relative

concentration in an industry but the industry constitutes only a smallshare of that region's economy, that relative concentration is notnecessarily indicative of an under-diversified economy.

D. Linkage of the Region's Economy to Potential Export Markets

Short of direct measures of inter-regional trade flows, the best measureof the links between the region's economy and external markets arebase multipliers constructed from employment and/or income data.One formula for the base multiplier is:

Base Multiplier = Change in Regional Employment/Change inEmployment in External Market

This can be calculated using one of several definitions of externalmarket-rest of state, rest of nation, other regions, etc. In addition, thedefinition of regional employment as well as external market can besector-specific. Once the multiplier has been calculated using historicaldata, an estimate of the impact on the regional economy that resultsfrom a change in external market conditions can be computed(Bendavid-Val [10]).

E. Constraints on Growth

Below are measures for three types of attributes associated with aregion's ability to support growth: labor force characteristics, poten-tial economies of scale, potential consumer markets, and attractive-ness.

Labor Force Availability And Quality. This attribute can bemeasured several ways:

- Percent of the population that is of prime labor force age (25-44),- Labor force participation rates (# in LF/# in population) by age

and sex,

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256 G. SCHULTINK

- The proportion of the adult population that have attended college,or

- The proportion (or share) of the population that have completedhigh-school but have had no college education.

The first two measures serve as a proxy for the potential work force.The second two measures capture the quality of labor force. In variouscombinations, these measures address the question of the availabilityof two different types of labor, educated and skilled. Availability of aneducated labor force indicates a relatively higher innovative potentialas well as possible entrepreneurial activity of a region. An alternativemeasure of the potential entrepreneurial activity is the share of uni-versity and college employment in the region.

Potential Economies of Scale. Potential external economies of scaleare thought to be realized if there is a critical mass of similar economicactivity. One measure of agglomeration is:

A = KN2

where A is potential external economies, K is a constant (with a defaultvalue equal to one), and TV can be population, employment, or numberof establishments.

This measure allows for the nonlinear effects of population, employ-ment and establishment levels on production efficiencies.

Potential Consumer Market. Per capita income level and growthcan provide an indicator as to whether a region's population cansupport sufficient consumer demand to stimulate local economicgrowth. Simple per capita income can serve as an index of marketpotential. In addition, per capita income relative to the state averageor ranking relative to other regions as an indicators of relativeconsumer demand. Local consumer demand can also be estimatedwith the following measure (Blakely [12]):

TC = Sf/[Sf * (/C//S)]

where TC is the trade capture or purchasing power, Sf is actual retailsales in sector j in the central place, S f is actual retail sales in sector j

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ENVIRONMENTAL INDICES 257

for the state, Ic is per capita income for the central place, and Is is percapita income for the state.

Actual retail sales data may be obtained from local sales taxinformation or through such sources as the Census of Business.Attractiveness. Attractiveness can also serve as a proxy for a region'sor an MSA's ability to attract resources, both labor and capitalinvestment resulting in the creation of employment opportunities.There are several measures of attractiveness, representing quality-of-life, including the following:

- Percent of population employed in tourism-related activities- Availability of vacation housing- Local sales tax as source of revenue

Quality-of-life indicators may include:

- Number of universities and colleges in the region- Number of highway and interstate miles within the region's border- Distance in miles to an international airport- Percent of employment in cultural and recreational industries- Environmental attributes such as climate (temperature and rain-

fall),- percent of undeveloped land, and miles of water frontage within the

region's borders.

References

[1] G. Schultink, Evaluation of Sustainable Development Alternatives: RelevantConcepts, Resource Assessment Approaches and Comparative Spatial Indicators,Intern. J. of Environmental Studies 41, 203-224 (1992).

[2] C. S. Holling, Adaptive Environmental Assessment and Management, (John Wileyand Sons, New York) (1973).

[3] R. J. Bawden and I. Valentine, "Learning to be a Capable Systems Agriculturalist",Programmed Learning and Educational Technology 21, 273-287 (1986).

[4] B. Wilson, Systems: Concepts, Methodologies, and Applications, (John Wiley andSons, New York) (1984).

[5] A. Hammond, et al. Environmental Indicators: A Systematic Approach toMeasuring and Reporting on Environmental Policy Performance in the Contextof Sustainable Development. (World Resources Institute, New York) (1995).

[6] A. Adriaanse, Policy Performance Indicators, Ministry of Housing, PhysicalPlanning and Environment, the Hague (1993).

[7] Environment Canada, State of the Environment Bulletin Series. SOE Bulletin No.92-1 Stratospheric Ozone Depletion. 1992.

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[8] G. K. Schultink, G. Roberts et al., Regional Profiles and Indicators for EconomicDevelopment Planning in Michigan, MSU/USDC-EDA (1993).

[9] R. E. Klosterman, Community Analysis and Planning Techniques, Rowman &Littlefield Publishers, Inc. (1990).

[10] A. Bendavid-Val, Regional and Local Economic Analysis for Practitioners, NewYork: Praeger Publishers, New York.

[11] C. Tiebout, The Community Economic Base Study, Committee for EconomicDevelopment (1963).

[12] E. J. Blakely, Planning Local Economic Development: Theory and Practice, SagePublications, Newbury Park, CA. (1989).

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