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Development Economics guide, Unit 3, step 10 of 10Guide overviewCase studies

Step 10: Sustainable and Urban Development

By the EconTutorials team. 12-minute read with 6 practice questions.
MatchesA-level sustainability and externalities · IB Economics sustainable development and the SDGs · undergraduate environmental and urban development
In 30 seconds
  • Sustainable development meets present needs without harming future generations’ ability to meet theirs (Brundtland Report, 1987).
  • The UN’s 17 Sustainable Development Goals (SDGs) set targets to 2030 for poverty, health, education, climate and more.
  • Environmental damage is a negative externality; common resources face the tragedy of the commons.
  • Payments for ecosystem services pay people to protect nature, turning a public good into an income.
  • Cities drive growth, but slums and poor transport waste their potential; infrastructure with positive externalities can transform them.

Growth and the environment

The environmental Kuznets curve suggests pollution rises in early industrialisation and falls once countries are rich enough to demand and pay for cleaner air and water. Local pollutants (smoke, sewage) often follow this pattern; carbon emissions and biodiversity loss often do not, because their costs fall on other countries and future generations.

Key termsNegative externality: a cost imposed on third parties that the producer does not pay. Tragedy of the commons: over-use of a shared resource because each user gains fully but bears only part of the cost (Hardin, 1968). Ecosystem services: benefits nature provides, such as clean water, carbon storage and flood protection.
Worked example

A farmer earns $120 a year per hectare from cattle on cleared land, or $40 from keeping the forest. The forest provides $200 a year of water and carbon benefits to others. Should a government pay the farmer to keep the trees, and how much?

1Private choice: clear the land, since $120 > $40.
2Social value of forest = 40 + 200 = $240, above the $120 from cattle. Clearing is inefficient.
3A payment of at least $80 (120 − 40) makes keeping the forest privately worthwhile; any payment up to $200 is less than the benefit to society.
ResultA payment between $80 and $200 per hectare corrects the externality. This is the logic of Costa Rica’s programme.

Urban development and connectivity

More than half the world lives in cities, and most future population growth in developing countries will be urban. Cities raise productivity through agglomeration economies: firms and workers learn from each other and share suppliers. But informal settlements cut off from jobs waste those gains. Transport links that connect poor districts to city centres generate positive externalities: access to jobs, lower crime and higher land values.

Case studies for this step (in the 100 Case Studies pack)
  • Case 98: Costa Rica’s Ecosystem Services. How a small country reversed deforestation by paying farmers to keep trees standing.
  • Case 97: The Aral Sea Disaster. The economic consequences of diverting two rivers, from “sea of islands” to desert in 50 years: the tragedy of the commons on a national scale.
  • Case 21: Medellín’s Urban Cable Cars. How a Colombian city used cable cars to transform an isolated community and prove the economics of connectivity.
Economics Case Studies coverCosta Rica, the Aral Sea and Medellín in full, with 97 more cases: 100 Economics Case Studies for $9 (was $15).Get the 100 cases · $9
Common mistakeAssuming poor countries must choose between growth and the environment. Costa Rica raised forest cover while its economy grew, and clean energy is now often the cheapest option for new power.
Exam tipUse an externality diagram (marginal private cost vs marginal social cost) to explain why markets over-produce pollution, then evaluate a fix: taxes, payments, regulation or property rights.

Practise: 6 questions

Try each one on paper first, then check the worked answer.

EasyQ1. Give the Brundtland definition of sustainable development. Show worked answer
Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.
EasyQ2. How many SDGs are there, and what is their target year? Show worked answer
17 goals, with a target year of 2030.
MediumQ3. Explain the tragedy of the commons using the Aral Sea. Show worked answer
The rivers feeding the sea were a shared resource. Planners diverted water to irrigate cotton, capturing the gains, while the costs (a shrinking sea, a lost fishing industry, dust storms and health damage) fell on others. With no one bearing the full cost, the resource was over-used until it collapsed.
MediumQ4. What is an agglomeration economy? Show worked answer
A cost saving or productivity gain firms and workers get from being close together, such as shared suppliers, a deep labour market and the spread of knowledge.
MediumQ5. Why might Medellín’s cable cars be described as having positive externalities? Show worked answer
Benefits went beyond fare-paying riders: better access to jobs and services for whole districts, falling crime, new businesses near stations and greater social inclusion. These gains are not captured in ticket revenue.
ExamQ6. Evaluate payments for ecosystem services as a way to protect forests in developing countries. [10] Show worked answer
For: corrects the externality; gives the poor an income for conservation; Costa Rica reversed deforestation [4]. Against: costly to fund; may pay for trees that would have stayed anyway (additionality); hard to monitor in countries with weak institutions; land rights must be clear [4]. Judgement: effective where funding, land titles and monitoring exist; best combined with regulation and enforcement [2].

Check yourself

1. Pollution from a factory that harms nearby farms is a

A cost falls on third parties who are not paid for it.

2. Costa Rica protected forests mainly by

Payments made keeping forests profitable.

3. The environmental Kuznets curve fits best for

Local damage is felt by voters, who demand clean-up as incomes rise.

Your score: 0 out of 3

The short version

  • Sustainable development protects future needs; the SDGs set targets to 2030.
  • Pollution and over-use of commons are market failures.
  • Payments, taxes and regulation can correct them.
  • Use Costa Rica (98), the Aral Sea (97) and Medellín (21).

You have finished the guide. Revisit the overview for the full case-study map, or plan a development dissertation with the Research Methods guide.

Want real examples you can quote in every answer?
100 case studies with data, theory, evaluation and exam guidance, 21 of them on development.
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