Environmental Kuznets Curve Hypothesis: A Survey

Abstract

The Environmental Kuznets Curve ( EKC) hypothesis postulates an inverted-U-shaped relationship between different pollutants and per capita income, i.e., environmental pressure increases up to a certain level as income goes up; after that, it decreases. An EKC actually reveals how a technically specified measurement of environmental quality changes as the fortunes of a country change. A sizeable literature on EKC has grown in recent period. The common point of all the studies is the assertion that the environmental quality deteriorates at the early stages of economic development/growth and subsequently improves at the later stages. In other words, environmental pressure increases faster than income at early stages of development and slows down relative to GDP growth at higher income levels. This paper reviews some theoretical developments and empirical studies dealing with EKC phenomenon. Possible explanations for this EKC are seen in (i) the progress of economic development, from clean agrarian economy to polluting industrial economy to clean service economy; (ii) tendency of people with higher income having higher preference for environmental quality, etc. Evidence of the existence of the EKC has been questioned from several corners. Only some air quality indicators, especially local pollutants, show the evidence of an EKC. However, an EKC is empirically observed, till there is no agreement in the literature on the income level at which environmental degradation starts declining. This paper provides an overview of the EKC literature, background history, conceptual insights, policy and the conceptual and methodological critique.