The environmental Kuznets curve

Abstract

The current interest in the relationship between per capita income and environmental quality is a logical extension of a debate about the environmental implications of economic growth that has punctuated the literature in environmental economics over the last three decades. The environmental significance of the post-war focus on economic growth was first explored in the 1960s in a series of contributions based on the mass balance principle. Boulding (1966), Cumberland (1966), Ayres and Kneese (1969), Victor (1972) and Maler (1974) all considered the implications of the fact that material growth in the economic system necessarily increases both the extraction of environmental resources and the volume of waste deposited in the environment. A number of the results generated by this literature have subsequently been absorbed by the literature in environmental (though not resource) economics. In 1971, the Report to the Club of Rome (Meadows et al., 1972) drew the rather startling conclusion that the continued growth of the world economic system was not sustainable because of the exhaustability of critical environmental resources. Economists responded that the rising price of scarce environmental resources would induce substitution into less scarce resources, so avoiding the limits imposed by a finite resource base (Review of Economic Studies, 1974). This argument was able to appeal to past evidence of substitution out of scarce environmental resources, and the view that market-driven feedback mechanisms would keep the global economy away from any ‘resource precipice’ became the received wisdom. The effect of the debate was to switch the focus of attention in environmental economics away from the problem of resource depletion, and towards the problem of pollution.