THERE is growing concern about the impact of economic activity upon the local and global environments. Environmental problems caused by economic activities have led to the establishment of rules that seek to prevent environmental degradation, and to make economic development compatible with the viability of natural resources.
This, for example, leads to the establishment of Sustainable Development Goals (SDGs), which contain among their targets an international agreement for actions to protect environments.
All production sectors in an economy are related. For example, production in sector A demands for raw materials produced by sectors B and C and so on. Production in sectors B, C and so on also requires raw materials produced by other sectors. Based on this simple illustration of economic interdependencies, there might be a case of emissions allegedly released by production in sector A, but which are actually contributed by other sectors. In another case, if sector A is largely dependent on imported raw materials, then is it likely that other countries are exporting “waste” to our country?
The above examples illustrate the application of forensic economics to measure the contribution of each sector along production chains.
Forensic economics is a broad field. Some applications fall under competition-law enforcement and legal review.
This letter explains the economy-wide accepted approach of how forensic economics is applied in the context of sustainability measures.
Water footprints, carbon footprints and material footprints are among the frequent sustainability measures used in the application of forensic economics.
Water footprint measures the amount of water used to produce each of the goods and services we use. It can measure a single process, such as growing rice, for a product, such as a pair of jeans, the fuel we put in our car, or for an entire array of products. It also can also tell us how much water is being consumed by a particular economic sector in a certain region, or a river basin that is located in other regions.
In addition to ecological footprints, global value chains (GVCs) require highly relevant analysis that demands for the application of forensic economics.
GVCs break production processes into different steps that can be carried out in different countries. For example, smart phones are designed in the United States. Sophisticated inputs, such as semiconductors and processors, are produced in the Republic of Korea or Chinese Taipei. They are assembled in China and finally marketed in Europe and the US.
Application of forensic economics analysis for sustainability measures requires the development of so-called systems of environmental-economic accounting (SEEA). Where are we right now in developing the SEEA for Malaysia?
In the past few years, the Department of Statistics Malaysia (DOSM) has started compiling a SEEA database. Once the SEEA is completed, policymakers can use it to analyse sustainability issues.
If the SEEA integrates the GVCs, then we will be able to identify industries in specific countries that export products with high emission intensity. We would also able to identify the final destination of our exported products. Do they come back into Malaysia in different forms, or more or less similar products?
DR MOHD YUSOF SAARI
Institute of Agricultural and Food Policy Studies
Universiti Putra Malaysia
