Criticism And Drawbacks Of The Kuznets Curve Economics Essay

Environmental Kuznets Curve

The Environmental Kuznets Curve ( EKC ) is a pragmatically, relationship that is assumed to follow the pollution way followed by states as their per capita gross domestic merchandise ( GDP ) grows and describes the relationship between per capita income and of environmental debasement indexs ( Unruth and Moomaw, 1998 ) . In the infant phases of development, the degrees of some pollutants climb with additions in per capita income, while at advanced degrees of development, environmental debasement follows a downward tendency as income per capita is traveling upwards. These consequences give rise to a bell shaped swerve associating economic growing to environmental debasement, redolent of the relationship hypothesized by Kuznets ( 1995 ) between economic and income inequality ( Nahman and Antrobus, 2005 ) . The construct of EKC came out in the early 1990s with Grossman and Krueger ‘s ( 1991 ) path-breaking survey of the possible impacts of NAFTA ( North American Free Trade Agreement ) .

Beginnings of the EKC

The environmental Kuznets curve is a hypothesized relationship between different indexs of environmental debasement and income per capita. At first phases of economic growing debasement and pollution addition, but further than some degree of income per capita, the motion reverses, so that at high-income degrees economic growing leads to environmental betterment. This means that the impact of environmental index is an upside-down U-shaped map of income per capita ( Stern, 2003 )

In other words, the distribution of income becomes more asymmetrical in early phase of income growing and so the distribution moves towards greater equality as economic growing continues ( Kuznets, 1955 ) . This affair between income per capita and income inequality can be represented by a bell-shaped curve. This is viewed as an empirical phenomenon known as the Kuznets Curve ( Dinda, 2004 ) .

Criticism and drawbacks of the Kuznets Curve

The Kuznets Curve has helped in analyzing the relationship between environmental pollutants and GDP of states but it does hold drawbacks excessively. Even Kuznets ( 1955 ) himself indicated that the Kuznets Curve Theory is non a perfect one and the relationship between income inequality and economic development can non be assumed. He besides declared that batch information in the paper has been speculated and therefore farther research work must be carried out.

The ground behind the development of the Environmental Kuznets Curve

Since the last decennaries, the increasing menace of planetary heating and clime alteration has been of major go oning concern. Administrations such as the United Nations have been seeking to decrease the unfavourable impacts of planetary warming through intergovernmental and binding agreements. After huge dialogues, the understanding viz. the Kyoto protocol was signed in 1997. This protocol has the aim of cut downing nursery gases ( GHG ) that cause climate alteration. The Kyoto protocol recognises restrictions to environmental pollutants and necessitates a timetable for realization of the emanation decreases for the developed states. During 2008 – 2012 periods the demands decrease of the GHG emanations to 5.2 % lower than the 1990 degree. In 2005 it came into force: 178 provinces have signed and approved the protocol since April 2008 ( Halicoglu, 2008 ) . Greenhouse gas emanations peculiarly C dioxide ( CO2 ) emanations, are considered to be the nucleus causes of planetary heating. Consequently, to forestall planetary warming a figure of states have signed the Kyoto Protocol and agreed to decrease their emanation degrees. Galeotti and Lanza ( 1999 ) indicated that some developing provinces refused to subscribe the Kyoto Protocol based on the statement that the industrialization and development procedure should be capable to no restraints, peculiarly for energy production and ingestion. One likely foundation for this place is the belief that while pollution additions with growing in GDP, it happens a point where pollution goes down. This position calls for a careful analysis of the relationship between economic growing and pollution. This relationship is evidently really complex as it depends on legion different factors such as:

The state ‘s size,

The sectoral construction, including the composing of the demand for energy,

The vintage of the engineering,

The demand for environmental quality,

The degree and quality of environmental protection outgos.

Shafik ( 1994 ) studies that the relationship between economic growing and environmental quality has been a beginning of great dissension for a drawn-out period of clip. On one side it has been observed that greater economic activity inescapably leads to environmental debasement and eventually to possible economic and ecological prostration. At the other side is the position that those environmental nuisances deserving work outing will be tackled more or less automatically as a effect of economic growing.

Previous to 1970, there was a strong belief that the natural stuffs ingestions, energy and natural resources were turning at the same gait as economic system grows. In the early 1970s, the Club of Rome ‘s Limits of Growth position ( Meadows et al. , 1972 ) was brazen about the concern for the handiness of natural resource of the Earth. They argued that the finitude of ecological resources would forestall economic growing and advocated for a solid province economic system with 0 growing to avoid dramatic ecological fortunes in the hereafter. This position has been criticised on both conjectural and empirical evidences. Experimental works shows that the ratio of ingestion of some metals to income was falling in developed states during the 1970s, which brings divergency with the anticipations set out in the Limits to Growth position ( Maleness, 1978 ) . Natural environment non merely supply natural resources of import for economic development but besides execute the critical map of back uping life, if adult male persist to work environment recklessly, so it would non be able to prolong life any longer.

Environmental Kuznets Curve definition and graphical illustration

The EKC follows the name of Nobel Laureate Simon Kuznets who had unusually hypothesized an upside-down ‘U ‘ income-inequality relationship ( Kuznets, 1955 ) . In the 1990s economic experts detected this relationship between economic growing and environmental debasement. Since so this relationship is known as Environmental Kuznets Curve.

Harmonizing to the EKC theory as a state develops, the pollution additions, but after making a specific degree of economic advancement pollution Begin to diminish. The EKC hypothesis suggests that environmental debasement is something ineluctable at the first phase of economic growing, so a underdeveloped state is forced to digest this debasement in order to develop. In a graphical representation the x-axis symbolize the economic growing which is measured by GDP per capita and the y-axis represents the environmental debasement which is measured by many different pollution indexs such as C dioxide, S dioxide, N oxide, deforestation etc.

The forms of the Environmental Kuznets Curves.

The relation between income and environmental force per unit area can be sketched in a several ways ; foremost one can separate monotone and non-monotonic curves. Monotonic curves may demo either mounting pollution with lifting incomes, as in the instance of municipal waste per capita or decreasing. But, non-monotonic forms may be more likely in other instances and two types have been recommended, viz. inverted-U and N-shaped curves. The form discovered in experiential research depend on the types of pollutants scrutinised and the theoretical accounts that have been used for illation. Four bad sentiments are presented in favor of an inverted-U curve for ( local ) air pollutants, which can be listed as:

Positive income snap ‘s for environmental quality,

Structural alterations in production and ingestion,

Rising information on environmental effects of economic activities as income rises and

More international trade and more unfastened political systems with increasing degrees of income ( Selden and Song 1994 ) .

Others, for illustration Pezzey ( 1989 ) and Opschoor ( 1990 ) , have argued that such inverted-U relationships may non keep in the long tally. They anticipated a alleged N-shaped curve which demonstrates the same form as the inverted-U curve ab initio, but beyond a certain income degree the relationship between environmental force per unit area and income is positive once more. Delinking is therefore considered a impermanent phenomenon. Opschoor ( 1990 ) , for illustration, argues that one time technological efficiency sweetenings in resource usage or suspension chances have been exhausted or have become excessively expensive, farther income growing will ensue in net environmental debasement. Despite these considerations empirical grounds so far has been mostly in favor of the inverted-U alternatively of the N shaped relationship ( de Bruyn et al. , 1998 ) .

The defects of EKC analysis

A figure of critical surveies of the EKC literature have been published ( e.g. Coodoon, 2003 ; Ekins, 2000 ; Fare et al.,2001 ; Perman, 2003 ; Stern et al. , 1996 ; Stern, 2004 ) .

Theoretical review

This subdivision discusses the unfavorable judgments that were raised against the EKC on theoretical ( instead than methodological ) evidences.

One of the chief unfavorable judgments of the EKC theoretical accounts is the premise that environment and growing are non interrelated. In simple words the EKC hypothesis assumes no feedback between income and the pollution of environment.

Fare et al. , ( 2001 ) refer that due to the non-availability of existent informations on environmental quality is the major limitation of all EKC surveies. Environmental quality is something that is non measured accurately. Therefore, a usher of environmental quality, which could be a better measuring, should be developed and used to analyze the EKC hypothesis.

Harmonizing to Ekins ( 2000 ) , consideration in measuring the strength of the appraisal is the dependability of the informations used. However, there is small mark that the information jobs are serious plenty to cast uncertainty on the basic environment-income nexus for any peculiar environmental index, but the consequences in fact imply that this might be the instance.

Stern ( 2004 ) draws his attending to the average – median job. He underlines that early EKC surveies showed that a figure of indexs: 2 SO emanations, x NO, and deforestation, extremum at income degrees around the current universe mean per capita income. A headlong glance at the available econometric estimations might hold lead one to believe that, given likely hereafter degrees of average income per capita, environmental debasement should turn down from the present onward. Income is non yet, usually distributed but really skewed, with much larger Numberss of people below average income per capita than above it. Hence, this shows a average instead than intend income that is the relevant variable.

Another job related with the EKC surveies is the small attending that has been paid to the statistical constituents of clip series analysis. Very few surveies in the yesteryear investigated the presence of unit root in clip series of variables used to look into the cogency of the EKC.

2 ) Econometric review

Stern ( 2004 ) in a study argues that the econometric unfavorable judgments of the EKC autumn into four chief classs: heteroscedasticity, simultaneousness, omitted variables prejudice, and cointegration issues.

Perman and Stern ( 2003 ) investigate the informations and theoretical accounts for unit roots and cointegration severally. Panel unit root trials designate that all three series – log sulfur emanations per capita, log GDP capita, and its square – have stochastic tendencies. Consequences for cointegration are less definite. About half the single state EKC arrested developments cointegrate but many of these have restrictions with “ wrong marks ” . Some panel cointegration trials point out cointegration in all states and some accept the non-cointegration hypothesis. However, even when cointegration is found, the signifier of the EKC relationship varies radically across states with many states holding U-shaped EKCs. In instance there ‘s a common cointegrating vector in all states it will be strongly rejected.

Coondoo and Dinda ( 2002 ) carried out an analysis for Granger Causality between CO2 emanations and income in assorted single states and parts. In general theoretical account that emerges is that causality runs from income to emanations or that there is no important relationship in developing states, while in developed states causality runs from emanations to income. Still, in every instance the relationship is positive so that there is no EKC type consequence.

Data and Time Series Properties

To analyze the relationship between the GDP of Mauritius and the C02 emanation in Mauritius the one-year informations that are being used are ; entire C02 emanation from 1976 to 2008, the existent GDP from 1976 to 2008, the population of Mauritius from 1976 to 2008, rising prices rate of Mauritius and the unemployment rate of Mauritius.

Beginning: Energy Data Book ( 2010 )

Figure 1: Per Capital CO2 Emission Estimate for Mauritius

From these sets of informations it can be clearly seen that while population was increasing ( Figure 2 ) , during these old ages the existent GDP ( Figure 3 ) has been fluctuating a spot. In mid 1970 ‘s after the independency at that place has been a batch of development and transmutation in our state. Our economic system was diversified and more occupations were created. Furthermore we received more foreign assistance. By the late 1970 ‘s our economic system deteriorated a spot chiefly due to the addition in crude oil monetary value in the universe market and this lead to less authorities subsidies and devaluation of our Mauritanian Rupees. Then by late 1980 ‘s the economic system experience steady growing and besides a high degree of employment, worsening rising prices and more domestic nest eggs. This period was besides marked by the roar in the sugar industry. Though the development slowed down in the 1990 ‘s there was a gradual development of the local fiscal establishments and at the same clip our domestic information telecommunication industry boomed. By the start of the twenty-first century at that place our fiscal services sector became a really of import pillar of the economic system with an increasing figure of seaward endeavors. Finally our economic system developed a batch due to the seafood processing and export during the last 10 old ages.

Figure 2: Population Estimates for Mauritius

Figure 3: GDP for Mauritius ( without rising prices )

In the short term existent GDP is affected by rising prices ( Figure 4 ) because the latter causes a rise in general monetary value of goods and services and accordingly this causes a alteration in investings, nest eggs, ingestion and import and export of a state and therefore the GDP of a state is affected excessively. [ The equation used to cipher existent GDP is ;

GDP = private consumption+ gross investing + authorities disbursement + ( exports – imports ) ]

Beginning: Federal Bank of Cleveland ( 2010 )

Figure 4: Inflation in Mauritius

GDP is besides depended on unemployment rate ( Figure 5 ) because harmonizing to this equation GDP =A compensation of employeesA +A gross operating surplusA +A gross assorted incomeA + revenue enhancements less subsidies on production and imports. Therefore if unemployment rate additions in a state, the GDP will diminish.

Beginning: Index mundi ( 2010 )

Figure 5: Unemployment Rate in Mauritius

While seeking to turn out the relationship between GDP of Mauritius and the C02 emanation of Mauritius, we can besides detect how the GDP besides affects the C02 emanation in each particular sector of Mauritius. Graph 6 shows how the Energy sector and the Transport sector are the chief subscribers to C02 emanation from 2000 to 2006.

Beginning: CSO Mauritius ( 2010 )

Figure 6: C02 emanation per sector