Economic growth and environmental degradation

Abstract

In this paper we critically examine the concept of the environmental Kuznets curve (EKC). It proposes that there is an inverted U-shape relation between environmental degradation and income per capita, so that, eventually, growth reduces the environmental impact of economic activity. The concept is dependent on a model of the economy in which there is no feedback from the quality of the environment to production possibilities, and in which trade has a neutral effect on environmental degradation. The actual violation of these assumptions gives rise to fundamental problems in estimating the parameters of an EKC. The paper identifies other econometric problems with estimates of the EKC, and reviews a number of empirical studies. The inference from some such EKC estimates that further development will reduce environmental degradation is dependent on the assumption that world per capita income is normally distributed when in fact median income is far below mean income. We carry out simulations combining EKC estimates from the literature with World Bank forecasts for economic growth for individual countries, aggregating over countries to derive the global impact. Within the horizon of the Bank's forecast (2025) global emissions of SO2 continue to increase. Forest loss stabilizes before the end of the period but tropical deforestation continues at a constant rate throughout the period. Show more