Michael J. Pieropan
ENVS 02: Human Nature, Technology and the Environment
Project Presentation: The Environmental Kuznets Curve
April 9, 2006
Conventional economic theory assumes that the relationship between income and environmental pollution is best characterized by an inverted U-shape. The Environmental Kuznets Curve (EKC) serves as a model in which economic growth brings an initial phase of increased pollution, followed by a subsequent improvement in environmental quality. It is hypothesized that developing countries give little attention to pollution issues at the onset of industrialization and economic growth. Once a country’s GDP per capita reaches a certain threshold value, environmental quality becomes more of a pertinent and addressable issue, which results in the imposition of various environmental regulations and policies. A lack of empirical research on the topic, primarily due to a shortage of reliable and comparable data, has left a degree of uncertainty and controversy surrounding the modeled relationship. Critics have proposed a number of alternative curves to describe the relationship between pollution and income per capita, including the ‘Revised EKC,’ ‘Race to the Bottom,’ and ‘New Toxics’ Curves (see Dasgupta 148).
Nemat Shafik’s econometric analysis of this issue concludes that the Environmental Kuznets Curve accurately depicts the relationship between income and environmental quality only for some pollutants. Levels of suspended particulate matter and ambient sulfur dioxide do display an inverted U-shape with regards to income, but sanitation and access to safe water seem to improve exponentially with increasing income, while carbon emissions and dissolved oxygen in rivers seem to steadily deteriorate. Shafik’s explanation for the observed relationships hinges on the economic concept of negative externalities. “Where environmental quality directly affects human welfare, higher incomes tend to be associated with less degradation. But where the costs of environmental damage can be externalized, economic growth tends to result in a steady deterioration of environmental quality (Shafik 758).” When the costs of pollution can be externalized by a given society, there exists a classic free-rider problem. The private benefits of pollution abatement are minimal, and there is no incentive to improve environmental quality.
A recent article published by economists at the World Bank present an optimistic view for the EKC’s future. It is proposed the EKC has begun to flatten downward and to the left, under the combined effects of economic liberalization, improved information flows, and better methods of environmental regulation. The author identifies environmental regulation as the “dominant factor in explaining the decline in pollution as countries grow beyond middle-income status (Dasgupta 152).” If properly designed and implemented, environmental policies can substantially reduce deterioration at low levels of income, and considerably expedite improvement at high income levels – thereby flattening the EKC down and to the left.
Dasgupta, Susmita; Benoit Laplante; Hua Wang; David Wheeler. "Confronting
the Environmental Kuznets Curve." The Journal of Economic Perspectives. Vol.
16, No. 1. Winter 2002. pp. 147-168
Grossman, Gene and Alan Krueger. "Economic Growth and the Environment." The
Quarterly Journal of Economics. Vol. 110, No. 2. May 1995. pp 353-377.
Shafik, Nemat. "Economic Development and Environmental Quality: An
Econometric Analysis. Oxford Economic Papers. Vol. 46. pp 757-773.
CIA - The World Factbook. Per Capita GDP Listings.
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