Development, trade, and the environment: how robust is the Environmental Kuznets Curve?

Abstract

This paper assesses the strength of the Environmental Kuznets Curve (EKC) which posits an inverted-U relationship between per capital income and pollution. Specifically, answers are sought to the following related questions: (1) How robust is the EKC relationship?; (2) To what extent can the EKC relationship be explained by changing trade patterns as opposed to growth-induced pollution abatement? With regard to question (1), the alleged weaknesses with the EKC are assessed and new EKCs are estimated using more appropriate econometric techniques. Turning to question (2), it is argued that the impact of trade liberalization on the environment will differ from country to country depending on whether or not they have a comparative advantage in pollution-intensive production. In turn, it is argued that this depends on a country's relative factor endowments and/or its relative environmental regulations. EKCs are therefore estimated in a manner that allows the impact of trade liberalization on pollution to depend on these country characteristics. The results indicate that the inverted-U relationship between per capita income and emissions is reasonably robust and little evidence is found to suggest that trade patterns are a significant determinant of the inverted-U shape.