The environmental Kuznets curve hypothesis

Abstract

Economic growth has been claimed to be of benefit to environmental quality. In this view, environmental quality is a luxury good and people are said to be willing to spend a larger share of their incomes on environmental goods as they become richer. Pollution will therefore diminish as the result of economic growth. This claim was first hypothesized by Beckerman (1972) and Simon (1977, 1981), as long ago as the 1970s. However, the claim could for a long time not be supported empirically because adequate data on the release of pollutants to the environment were not available. Since the beginning of the 1990s, however, sufficient empirical data on various pollutants became available through the Global Environmental Monitoring System on air and water quality (GEMS), the Toxic Release Inventory (TRI), the CO₂emissions estimates from the Oak Ridge National Laboratory (ORNL) and the environmental data compendia by the OECD and Eurostat. In addition, many initiatives on environmental data collection were undertaken at the national statistical offices. These data have facilitated testing the relationship between environmental pressure and income. Empirical evidence for an inverted U-shaped relationship between certain types of pollutants and income was first generated by Grossman and Krueger (1991), followed by Shafik and Bandyopadhyay (1992), Panayotou (1993) and Selden and Song (1994). This would suggest that environmental pressure declines after a certain level of income has been reached. The inverted-U relationship has been labelled by Panayotou (1993) as the environmental Kuznets curve (EKC hereafter), analogous to the ‘bell-shaped’ relationship that Simon Kuznets (1955) suggested exists between income inequality and per capita income.