Air quality and economic growth: an empirical study

In the present empirical study, we have observed an inverse (and sometimes U-shaped) relationship between environmental degradation and per capita rea l income as opposed to the inverted tr-shaped environmental Kuznets curve ( EKC) found in many earlier studies. It was felt that a possible explanation of the observed pattern of relationship might be sought in the dynamics of the process of economic growth experienced by the countries concerned. Thu s, e.g. economic development may strengthen the market mechanism as a resul t of which the economy may gradually shift from non-market to marketed ener gy resources that are less polluting. This phenomenon may show up in the fo rm of an inverse relationship, as mentioned above. Also, due to the global technical progress the production techniques available to the countries all over the world are becoming more and more capital intensive and at the sam e time less polluting. This may mean that, given the income level, the poll ution level decreases as the capital intensity of an economy rises. Tn the present study, it is indeed observed that as capital intensity increases th e level of suspended particulate matter (spm) in the atmosphere decreases. Per capita real income is also found to be inversely related to spm partial ly, but the interaction effect of per capita income and capital-intensity o n spm is observed to be positive. This suggests that, given the level of pe r capita income (capital intensity), a more capital intensive production te chnique (a higher per capita income level) would cause less pollution. For spm a surprising result is also obtained, i.e. a U-turn is observed at a ve ry high level of per capita real income (i.e. similar to US$12 500 at 1985 US prices). This is possibly indicative of the fact that there are technolo gical limits to industrial pollution control such that beyond a threshold l evel of income further rise in income cannot be achieved without environmen tal degradation. (C) 2000 Elsevier Science B.V. All rights reserved.