A Theoretical Basis for the Environmental Kuznets Curve

Dinda, Soumyananda (2002): A Theoretical Basis for the Environmental Kuznets Curve. Published in: Ecological Economics , Vol. 53, No. 3 (2005): pp. 403-413.

Abstract

This paper attempts to explain the Environmental Kuznets Curve (EKC) or inverted U-shaped relationship between income and environmental degradation in the framework of endogenous growth model. Considering a closed economy, one part of capital is used for commodity production, which generates pollution that degrades existing environment, and the remaining part is used for abating pollution (i.e., upgrading environment). Sufficient abatement activity improves / restores environmental quality. A sufficient abatement activity (associated with commodity production) could only lead optimally towards steady state. The ratio of allocation of capital between two sectors (production and abatement) is fixed along the optimal path, but it varies along the non-optimal path that exists in the off-steady state. In the economy, allocation of capital for abatement activity varies over time. Thus, a change from insufficient to sufficient allocation of capital (i.e., investment) for abatement activity is the basis for an inverted U-shaped relationship between environmental quality and economic growth.

• Item Type: MPRA Paper
• Language: English
• Keywords: Abatement Activity, Allocation of Capital, EKC, Environmental Quality, Environmental Kuznets Curve, Two-sector model, and Endogenous growth model.
• Subjects: H - Public Economics > H4 - Publicly Provided Goods > H41 - Public Goods; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O44 - Environment and Growth; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q2 - Renewable Resources and Conservation

References

• Aghion, P. and P. Howitt, (1998), Endogenous Growth Theory. The MIT Press, Cambridge, M.A.

• Agras, J. and D. Chapman, (1999), A dynamic approach to the Environmental Kuznets Curve hypothesis, Ecological Economics, Vol.- 28(2), 267-277.

• Andreoni, J. and A., Levinson, (2001), The Simple Analytics of the environmental Kuznets Curve, Journal of Public Economics, vol.-80(2), 269 – 286.

• Barro, R. J. and X. Sala-I-Martin, (1995), Economic Growth, McGraw-Hill, Inc., New York.

• Beltratti, A., (1996), Models of Economic Growth with Environmental Assets, Kluwer Academic Publishers, Dordrecht.

• Bimonte, S., (2002), Information access, income distribution, and the Environmental Kuznets Curve, Ecological Economics, Vol.-41(1), 145-156.

• Bovenberg, A. L. and S. Smulders, (1995), Environmental quality and pollution-augmenting technological change in a two-sector endogenous growth model, Journal of Public Economics, vol.-57, 369-391.

• Bulte, E. H. and D. P. van Soest (2001), Environmental degradation in developing countries: Households and the (reverse) environmental Kuznets curve, Journal of development Economics, vol.-65, 225-235.

• Cass, D., (1965), Optimum growth in an Aggregative Model of capital accumulation, Review of Economics studies, vol.-32, 233 – 240.

• Cole, M. A., A. J. Rayner and J. M. Bates, (1997), The Environmental Kuznets Curve: an empirical analysis, Environment and Development Economics, vol.-2, 401-416.

• D’Arge, R.C. and K.C. Kogiku, (1973), Economic growth and the environment, Review of Economics Studies, vol.-40, 61-77.

• Dinda, S., D. Coondoo and M. Pal, (2000), Air quality and economic growth: an empirical study, Ecological Economics, vol.-34(3), 409 -423.

• Elbasha, E. H. and T. L. Roe, (1996), On Endogenous Growth: The Implications of Environmental Externalities, Journal of Environmental Economics and Management, vol-31, 240-268.

• Forster, B.A., (1973), Optimal capital accumulation in a polluted environment, Southern Economic Journal, vol.-39, 544-547.

• Gangadharan, Lata and Valenzuela, Ma. Rebecca; (2001), Interrelationships between income, health and the environment: extending the Environmental Kuznets Curve hypothesis, Ecological Economics, Vol.-36(3), 513-531.

• Gawande, Kishore; Alok K. Bohara, R. P. Berrens and P. Wang, (2000), Internal migration and the environmental Kuznets curve for US hazardous waste sites, Ecological Economics, Vol.- 33(1), 151-166.

• Gradus, R. and S. Smulders, (1993), The Trade-off Between Environmental Care and Long-term Growth –Pollution in Three Prototype Growth Models, Journal of Economics, vol.-58(1), 25-51.

• Grossman, G. M. and A. B. Krueger, (1995), Economic Growth and the Environment, Quarterly Journal of Economics, vol.-110, 353 – 377.

• Gruver, G.W., (1976), Optimal investment in pollution control in a neoclassical growth context, Journal of Environmental Economics and Management, vol-3, 165-177.

• John, A. and R. Pecchenino, (1994), An Overlapping Generations Model of Growth and the Environment, The Economic Journal, vol.-108, 1393 - 1410.

• Keeler, E., M. Spence and R. Zeckhauser, (1972), The optimal control of pollution, Journal of Economic Theory, vol.-4, 19-34.

• Krautkraemer, J. A., (1985), Optimal growth, Resource Amenities and the preservation of Natural Environments, Review of Economic Studies, vol.-LII, 153-170.

• Lieb, C. M., (2002), The Environmental Kuznets Curve and satiation: a simple static model, Environment and Development Economics, vol.-7, 429 - 448.

• Lopez, R., (1994), The environment as a factor of production: the effects of economic growth and trade liberalization, Journal of Environmental Economics and Management, vol.-27, 163 – 184.

• Michel, P. and Rotillon (1995). ''Disutility of Pollution and Endogenous Growth''. Environmental and Resource Economics, vol.-6, 279-300.

• Mulligan, C. B. and X. Sala-I-Martin, (1993), transitional Dynamics in Two-sector Models of Endogenous Growth, Quarterly Journal of Economics, vol.-108(3), 739-773.

• Munasinghe, M., (1999), Is environmental degradation an inevitable consequence of economic growth: tunneling through the environmental Kuznets curve, Ecological Economics, Vol.-29(1), 89-109.

• Pasche,M., (2002), Technical progress, structural change, and the environmental Kuznets curve, Ecological Economics, Vol.-42(3), 381-389.

• Rothman, D. S., (1998), Environmental Kuznets curves––real progress or passing the buck?: A case for consumption-based approaches, Ecological Economics, Vol.-25(2), (Special Issue), 177-194.

• Selden, T. M. and D. Song, (1994), Environmental Quality and Development: Is there a Kuznets curve for Air Pollution Emissions?, Journal of Environmental Economics and Management, vol.-27, 147–162.

• Seldon T. M. and D. Song, (1995), Neoclassical growth, the J curve for abatement and the inverted U curve for pollution, Journal of Environmental Economics and Management, vol.-29(2), 162-168.

• Shafik, N., (1994), Economic Development and Environmental Quality: An econometric analysis, Oxford Economic Papers, vol.-46, 757 – 773.

• Stern, D. I., (2004), The rise and fall of the Environmental Kuznets Curve, World Development, vol.-32(8), 1419 – 1439.

• Stokey, N.L., (1998), Are there limits to growth? International Economic Review, vol.-39, 1 –31.

• Suri, V. and D. Chapman, (1998), Economic growth, trade and energy: implications for the Environmental Kuznets Curve, Ecological Economics, vol.-25, 195 – 208.

• Tahvonen, O. and J. Kuuluvainen (1993). Economic Growth, Pollution, and Renewable Resources. Journal of Environmental Economics and Management, vol.-24, 101—118.

• Tisdell, C., (2001), Globalisation and sustainability: environmental Kuznets curve and the WTO, Ecological Economics, Vol.-39(2), 185-196.

• Withagen, C. (1995). Pollution, Abatement and Balanced Growth. Environmental and Resource Economics, vol.-5, 1-8.

• World Bank, (1992), World Development Report, Oxford University Press, New York.