Air quality and economic growth: an empirical study

Abstract

In the present empirical study, we have observed an inverse (and sometimes U-shaped) relationship between environmental degradation and per capita real income as opposed to the inverted U-shaped environmental Kuznets curve (EKC) found in many earlier studies. It was felt that a possible explanation of the observed pattern of relationship might be sought in the dynamics of the process of economic growth experienced by the countries concerned. Thus, e.g. economic development may strengthen the market mechanism as a result of which the economy may gradually shift from non-market to marketed energy resources that are less polluting. This phenomenon may show up in the form of an inverse relationship, as mentioned above. Also, due to the global technical progress the production techniques available to the countries all over the world are becoming more and more capital intensive and at the same time less polluting. This may mean that, given the income level, the pollution level decreases as the capital intensity of an economy rises. In the present study, it is indeed observed that as capital intensity increases the level of suspended particulate matter (spm) in the atmosphere decreases. Per capita real income is also found to be inversely related to spm partially, but the interaction effect of per capita income and capital-intensity on spm is observed to be positive. This suggests that, given the level of per capita income (capital intensity), a more capital intensive production technique (a higher per capita income level) would cause less pollution. For spm a surprising result is also obtained, i.e. a U-turn is observed at a very high level of per capita real income (i.e. ∼US$12 500 at 1985 US prices). This is possibly indicative of the fact that there are technological limits to industrial pollution control such that beyond a threshold level of income further rise in income cannot be achieved without environmental degradation.