Environmental Engineering Reference
In-Depth Information
Environmental degradation
A
B
C
Per capita income
Figure 3.1
Environmental degradation and per capita income
ically equivalent to rising output in material terms but to rising output in value terms
(Pezzey, 1992, p. 324). Thus economic value needs to be decoupled from resource deple-
tion and environmental destruction. However, from the theoretical discussion above no
conclusive answer is found that explains how this decoupling will occur.
Examining the empirical evidence
As we have discussed, the theoretical explanations are mixed: economic growth may or
may not bene
t the environment. Therefore we shall now examine the empirical literature
on the link between economic growth and the environment.
Unfortunately, results from empirical studies have also been mixed, for both di
fi
ff
erent
environmental indicators and also, perhaps more worryingly, for di
erent studies looking
at the same environmental indicator. But the results overall point to three qualitative
ideal-type cases to be distinguished (see Figure 3.1).
Formally, in the majority of studies, the basic EKC equation that is estimated is of the
following form:
ff
E
it
=
(
+
i
F
i
)
+
Y
it
+
(
Y
it
)
2
+ k
t
+
it
(3.1)
where
E
denotes the environmental indicator, either in per capita form or in the form of
concentrations,
Y
denotes per capita income,
F
denotes country-speci
fi
c e
ff
ects,
k
refers
to year-speci
c dummies or a linear time trend and
i
and
t
refer to country and
year, respectively. In equation (3.1), if
fi
is negative and statistically signi
fi
cant but
is
statistically insigni
cant, then we get pattern A. These are indicators that show an
unambiguous improvement with rising per capita income, such as access to clean water
and adequate sanitation. If
fi
is positive and statistically signi
fi
cant but
is statistically
