Environmental Engineering Reference
In-Depth Information
3
The environmental Kuznets curve
James Van Alstine and Eric Neumayer
Introduction
The presumption is often made that economic growth and trade liberalization are good
for the environment. The risk is that policy reforms designed to promote growth and lib-
eralization may be encouraged with little consideration of the environmental conse-
quences (Arrow et al., 1995). At the early stages of the environmental movement some
scientists began to question how natural resource availability could be compatible with
sustained economic growth (Meadows et al., 1972). Neoclassical economists, on the other
hand,
ercely defended that limits to growth due to resource constraints were not a
problem (e.g. Beckerman, 1974). Thus the debate between the so-called environmental
pessimists and optimists began as centered on non-renewable resource availability.
Although the debate has continued throughout the years (e.g. Beckerman, 1992;
Lomborg, 2001; Meadows et al.,1992; 2004), the pessimists were perhaps naïve in extrap-
olating past trends without considering how technical progress and a change in relative
prices can work to overcome apparent scarcity of limits (Neumayer, 2003b, p. 46).
In the 1980s, issues such as ozone layer depletion, global warming and biodiversity loss
began to refocus the debate around the impacts of economic growth on environmental
degradation. Interest was shifting away from natural resource availability towards the
environment as a medium for assimilating wastes (i.e. from 'source' to 'sink') (Neumayer,
2003b, p. 47). Also, following the Brundtland Report (WCED, 1987), the discourse of sus-
tainable development largely embraced the economic growth logic as a way out of
poverty, social deprivation and also environmental degradation, particularly for the devel-
oping world. Thus the relationship between economic growth and the environment came
under increased scrutiny.
In the 1990s, the empirical literature on the link between economic growth and envi-
ronmental pollution proliferated (see Cole and Neumayer, 2005; Stern, 2003; 2004 for
overviews). Much of this literature sought to test the environmental Kuznets curve (EKC)
hypothesis, which posits that in the early stages of economic development environmental
degradation will increase until a certain level of income is reached (known as the turning
point) and then environmental improvement will occur. This relationship between per
capita income and pollution is often shown as an inverted U-shaped curve. This curve is
named after Kuznets (1955), who hypothesized that economic inequality increases over
time and then after a threshold becomes more equal as per capita income increases
further. In the early 1990s the EKC was introduced and popularized with the publication
of Grossman and Krueger's (1991) work on the potential environmental impacts of
NAFTA, and the 1992 World Bank Report (Sha
fi
fi
k and Bandyopadhyay, 1992; World
Bank, 1992).
This chapter will critically review the theoretical and empirical literature on the EKC.
We
nd that recent improvements in empirical methods address a number of past criti-
cisms, which adds robustness to the EKC results for certain environmental pollutants.
fi
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