Selected Empirical Analyses
New Horizons in Environmental Economics series
Edited by Phoebe Koundouri
Chapter 16: Examining the Environmental Kuznets Curve: what can Kernel estimation say?
Salvatore Di Falco 1. INTRODUCTION The relation between economic development and environmental quality in the last ten years has captured a lot of attention in the scientiﬁc community. Today it is one of the most lively research lines in Environmental and Resource Economics. In fact after some seminal papers, for instance: Shaﬁk and Bandyopadhyay (1992), Grossman and Krueger (1991, 1993, 1995), Panayotou (1993), Saldon and Song (1994), an increasing amount of this literature has ﬂourished around the so-called Environmental Kuznets Curve hypothesis (EKC, hereafter), and this is likely to continue for some time. The EKC is an empirical ﬁnding which relates environmental degradation, captured by some environmental quality indicators, and per capita income levels. The hypothesized functional relation between these two variables is concave. Therefore, environmental degradation will initially increase and after a ‘peak’ in a successive stage decrease as the level of income increases. In other words, after a ﬁrst stage in which economic development is harmful to the environment, there exists a stage in which higher levels of per capita income are positively correlated with an improvement in environmental quality. So, richer and greener is not only to be hoped for, it is also to be expected, and it is possible to ‘grow out’ of some environmental problems. The simple (or simplistic?) policy implication is that, as stated by Beckerman (1992), ‘the best way for countries to reach low levels of environmental degradation is to become richer’. This idea of income determinism has been strongly criticized...
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