RS-02-1a Update: 2004
Bruce Yandle, Madhusudan Bhattarai, and Maya Vijayaraghavan
Since 1991, when economists first reported a systematic relationship between income changes and environmental quality, the Environmental Kuznets Curve (EKC) has become standard fare in technical conversations about environmental policy (Grossman and Krueger 1991). EKCs are statistical artifacts that summarize a few important aspects of collective human behavior in two-dimensional space. A chart showing an Environmental Kuznets Curve reveals how a specific measurement of environmental quality changes as the income of a nation or other large human community changes.
When first unveiled, EKCs revealed a surprising outcome. Some important indicators of environmental quality such as the concentrations of sulfur dioxide and particulates in the air actually improved as incomes and levels of consumption went up. This happy outcome occurred when incomes were higher. Before that point, however, at lower income levels, environmental quality deteriorated as incomes began to rise.
These results quickly generated extensive scholarship. To the authors' knowledge, there have been over 100 peer-reviewed EKC publications since Grossman and Krueger's path-breaking work. A review and synthesis of the methods used and the findings of all these studies is beyond the scope of this study. Our major focus is to review the main findings and methodologies of studies that have made significant contributions to the EKC literature. This study updates and extends the earlier PERC study, "The Environmental Kuznets Curve: A Primer," by Bruce Yandle, Maya Vijayaraghavan, and Madhusudan Bhattarai (PERC Research Study 02-1, March 2002).
Our review reveals that while there is no single relationship that fits all pollutants for all places and times, in many cases the inverted-U EKC best approximates the link between environmental change and income growth. Furthermore, the acceptance of the EKC hypothesis for select pollutants has important policy implications. Specifically, over time, policies that stimulate growth (trade liberalization, economic restructuring, and price reform) should be good for the environment.
But there is more to the story than rising income. Improvement of the environment depends on government policies, social institutions, and the completeness and functioning of markets. Because market forces will ultimately determine the price of environmental quality, policies that allow market forces to operate are expected to be unambiguously positive. The search for meaningful environmental protection is a search for ways to enhance property rights and markets.
Bruce Yandle is a PERC senior associate and professor of economics Emeritus at Clemson University. He has served as chairman of the South Carolina State Board of Economic Advisors, senior economist on the President's Council on Wage and Price Stability, and executive director of the Federal Trade Commission. Yandle is author or editor of fourteen books, including Environmental Use and the Market, The Political Limits of Environmental Regulation, Regulatory Reform in the Reagan Era, Taking the Environment Seriously, Land Rights: The 1990s' Property Rights Rebellion, Common Sense and Common Law for the Environment, and The Market Meets the Environment. Yandle received his A.B. degree in economics from Mercer University and his master's and Ph.D. degrees from Georgia State University.
Madhusudan Bhattarai is a scientists in economics with the International Water Management Institute in Colombo, Sri Lanka. At present, he is studying irrigation impacts in Asia and interbasin and intersectoral water transfers and conducting a global-level analysis to establish a relationship between irrigation development and societal development level (an Environment Kuznets Curve for irrigation). Bhattarai was a research scholar and a collaborator consultant at the International Rice Research Institute in the Philippines. His bachelor's degree in agricultural science is from Andhra Pradesh Agricultural University, India, and his Ph.D. is from Clemson University.
Maya Vijayaraghavan is an economist and Steven M. Teutsch Fellow in the Office on Smoking and Health of the Centers for Disease Control and Prevention in Atlanta, Georgia. She served as a consultant to the Middle East and North Africa Region of the World Bank Group in Washington, D.C. Vijayaraghavan received her B.S. degree in botany from Stella Maris College, India, an M.S. in environmental toxicology from the University of Madras, India, and a Ph.D. in applied economics from Clemson University. Her research on this project was undertaken while she was a research associate with Clemson University's Center for International Trade.
PERC Research Studies, written by PERC fellows, associates, and colleagues, are designed to give scholars and policy analysts background for understanding today's environmental policy issues. These studies illustrate PERC's ongoing commitment to high-quality, policy-relevant research. PERC's Research Studies are edited by Jane S. Shaw and produced by Dianna Rienhart.
China and the Environmental Kuznets Curve