Over the past years, numerous studies on the Environmental Kuznets Curve have been in great contention by investigating the income-pollution relationship. In recent times, however, criticism of cross-section estimations of the EKC hypothesis has grown. Consequently, the contribution of this study uses time series data for a developed country with reliable data: Canada. A dynamic analysis is performed in the form of the Vector Error Correction Model to test the short-run and long-run relationship of income and pollution. Using this method it is found that short-run estimations do not support the EKC hypothesis, but only in the long-run does it support the EKC hypothesis.
This literature review is organized in the following manner. The first section gives a brief background on the theory of the EKC and the assumptions behind it. In the second section, literature focused on cross-country analyses is presented. The third section considers studies concerning an individual country approach.
2.1 Theoretical Background of the EKC
There are many assumptions that can explain the inverse U-shape relationship between pollution and income. It has been stated that the EKC is the result of non-homothetic preferences of users of environmental goods within the economy (Lopez, 1994). When individuals have homothetic preferences it implies that when income increases, so does consumption, which by extension causes increased pollution. When individuals have non-homothetic preferences, when income increases they decide to consume less and thus, pollute less. This depends on the relative risk aversion to damaging the environment in order to consume more.
Dasgupta and Laplante (2002) presented assumptions regarding the inverted U-shape relationship betw...
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... income, therefore a time trend was added to the static model. Furthermore, the Engel-Granger test revealed no cointegration between the explanatory variables. This result suggests that a long-term relationship between per capita income and the measures of environmental degradation in the study, do not exist.
Day and Grafton tested for causality using a vector autoregression (VAR) approach. The test elicited bidirectional causality and not unidirectional causality, from income to the environment. They conclude that there is little evidence that suggests increases in income per capita will effectively reduce environmental degradation. Day and Grafton (2001), suggest in order to adequately assess the economic-environmental growth relationship, a sectoral analysis is recommended as it will help explain the effects of economic and social progress on the environment.
The rate of change should also be heeded but also comes with its own problems since concrete proof is scarce. While it is easy to agree that some changes did occur, it is not quite so easy to find evidence that answers why or how those changes happened. It is in Cronon’s opinion that changes in the environment should not be blamed upon a people without first garnering
The reason because environmental issues were not take in consideration before, in the economic field, was due to the absence of their costs from the calculation of GNI. However, it has to be consider that future growth and in general, quality of life are strongly related to environment. Therefore, environment’s long term implications has to be taken in consideration in the economy.
”(Geduld). The chemical valley in sarnia ontario is a major contributor to the air pollution in canada; “seventy percent of short term air pollution exposure deaths are in Quebec and Ontario, yet only sixty-two percent of canadians live in central canada. ”(Geduld) .... ... middle of paper ... ...
Stern, DI 2004, 'The rise and fall of the environmental Kuznets Curve', World Development, vol. 32 no. 8, pp 1419-1439, Elsevier, Maryland, USA.
Moreover, Agnolucci applied an econometric approach to assess the effect of the environmental tax reforms introduced in Germany and the UK, especially their effects on energy consumptions and employment level…. In this paper, the author modelled his data by sorting them into the following various economics subsectors: Textiles and leather (TXT); Pulp, paper and printing (PPP); Rubber and plastics (RP); Non-metallic minerals (NMM); Machinery (MAC); Electrical and optical equipment (ELE); Wholesale and retail trade (TRA) which covered almost the whole spectrum of manufacturing activity. Therefore, I am able to use these subsectors later in my solving process.
Wright, G. & Czelusta, J. (2004). Why Economies Slow The Myth ofthe Resource Curse. Challenge, 47 (2), 6–38.
He concludes by saying, these low wage countries should contain high pollution. The premise of Summer’s argument is assumed true, so his argument is invalid, but strong. (C1) Many agree with Summer on his stance of high-pollution industries in lesser-developed countries. They claim that it is economic logic to fill the countries with low wages with profitable industries.
1998-1999 World Resources: A Guide to the Global Environment. Environmental Change and Human Health. A Joint Publication by the World Resources Institute, the World Bank, the United Nations Environmental Programme, and the United Nations Development Programme. Oxford University Press, New York, NY 1998.
Every day when looking out a window, people see a beautiful earth. The earth is intriguing, but hinges on a delicate balance. Many natural resources keep the grass green and the sky blue. Man has made quite an impression on our world, and has transformed the earth's resources into tools to make life easy. However, mans' manipulation on earth has become detrimental to the health of our planet and the safety of mankind. Through the use and production of resources such as oil and energy, man is gradually poisoning the earth. Pollution has become such a dilemma in society; there is no real control or a feasible solution to society's recklessness. Without complete change, our system will collapse. The earth will eventually retaliate with disaster, or corporate control of our economy will cause hysteria and depression. Evaluation of the consequences and repercussion of worldwide pollution, may give people a better idea of what the future holds.
The manner by which the environment is being harmed is much different now than it was in the 1400's. Production byproducts rather than the actual production are the cause of current environmental degradation. However, economic analysis has proven that environmental protection is a normal good. A normal good or service in economic terms means that the demand for such items increases as income increases. As such, for the sake of the poor as well as the environment, policy makers with the aim of environmental protection should also consider their effects on the resulting, generally decreased level of production.
In traditional opinions, environmental protection and economic growth are mutually contradictory. Economic growth is a high environmental cost, and protecting the environment will limit the economic growth. The reason of contradiction stems from the inappropriate understandings among development, economic growth and environmental protection. In fact, economic growth could have a harmonious relationship with environmental protection.
Ayres (2008) advances the concept of ‘sustainability economics’, which deals with the issue of maintaining economic growth while paying special attention to environmental concerns of energy utilization and resource exhaustion, especially carbon fuel consumption and its relation to climate change.
Though several people see large rapidly growing populations in developing regions as the primary culprit in environmental decline, we need to focus on the costly environmental outcomes of overconsumption among the gradually increasing populations of the developed nations. These differing emphases naturally point to fundamentally different solutions: slow population increase in less-developed nations or change destructive consumption and production patterns in the more-developed nations. This debate, however, assumes a one-step answer to the complex problems created by population pressures on the environment. Both population size and consumption ...
Economic growth also play a role in reducing debt to GDP ratios. Therefore, money can be spent on protecting the environment. With higher real GDP a society can dedicate more resources to promoting recycling and the utilization of renewable resources investment. Economic growth encourages investment and therefore encourages a virtuous cycle of economic growth.
Economic development has a direct relationship with the environment. Whereas economic development is a policy intervention endeavour with aims of economic and social well-being of the people, economic growth is a phenomenon of market productivity and rise in GDP. According to them, the first chain consists of economic growth benefiting human development, since economic growth is likely to lead families and individuals to use their heightened incomes to increase expenditures, which in turn furthers human development. At the same time, with the increased consumption and spending, health, education and infrastructure, systems grow and contribute to economic growth.