ECONOMIC GROWTH AND THE ENVIRONMENT

ECONOMIC GROWTH AND THE ENVIRONMENT

February 1994 | Gene M. Grossman, Alan B. Krueger
This paper examines the relationship between economic growth and environmental quality using data from the Global Environmental Monitoring System (GEMS). It analyzes four types of environmental indicators: urban air pollution, oxygen levels in river basins, fecal contamination in river basins, and heavy metal contamination in river basins. The study finds that environmental quality does not necessarily deteriorate with economic growth. Instead, for most indicators, economic growth initially leads to deterioration followed by improvement. The turning points for different pollutants vary, but in most cases, they occur before a country reaches a per capita income of $8,000. The study uses panel data on ambient pollution levels in many countries to analyze the empirical relationship between national income and environmental quality. It finds that while economic growth may initially worsen environmental conditions in poor countries, air and water quality tend to improve once a critical level of income is reached. For seven of the fourteen indicators, there is a statistically significant positive relationship between environmental quality and income for middle-income countries with a per capita GDP of $10,000. Only in one case (total coliform) is there a significant adverse relationship at this income level. The study also finds that environmental quality may improve automatically when countries develop if they substitute cleaner technologies for dirtier ones or if there is a significant effect on pollution from structural transformations. However, the strongest link between income and pollution is via an induced policy response. As nations become wealthier, their citizens demand more attention to non-economic aspects of their living conditions, leading to stricter environmental standards and enforcement. The study concludes that economic growth does not necessarily lead to environmental degradation. Instead, environmental quality may improve once a critical level of income is reached. The findings suggest that low-income countries have the opportunity to learn from past experiences and avoid some of the mistakes of earlier growth experiences. With increased awareness of environmental hazards and the development of cleaner technologies, low-income countries may be able to focus on environmental preservation at earlier stages of development.This paper examines the relationship between economic growth and environmental quality using data from the Global Environmental Monitoring System (GEMS). It analyzes four types of environmental indicators: urban air pollution, oxygen levels in river basins, fecal contamination in river basins, and heavy metal contamination in river basins. The study finds that environmental quality does not necessarily deteriorate with economic growth. Instead, for most indicators, economic growth initially leads to deterioration followed by improvement. The turning points for different pollutants vary, but in most cases, they occur before a country reaches a per capita income of $8,000. The study uses panel data on ambient pollution levels in many countries to analyze the empirical relationship between national income and environmental quality. It finds that while economic growth may initially worsen environmental conditions in poor countries, air and water quality tend to improve once a critical level of income is reached. For seven of the fourteen indicators, there is a statistically significant positive relationship between environmental quality and income for middle-income countries with a per capita GDP of $10,000. Only in one case (total coliform) is there a significant adverse relationship at this income level. The study also finds that environmental quality may improve automatically when countries develop if they substitute cleaner technologies for dirtier ones or if there is a significant effect on pollution from structural transformations. However, the strongest link between income and pollution is via an induced policy response. As nations become wealthier, their citizens demand more attention to non-economic aspects of their living conditions, leading to stricter environmental standards and enforcement. The study concludes that economic growth does not necessarily lead to environmental degradation. Instead, environmental quality may improve once a critical level of income is reached. The findings suggest that low-income countries have the opportunity to learn from past experiences and avoid some of the mistakes of earlier growth experiences. With increased awareness of environmental hazards and the development of cleaner technologies, low-income countries may be able to focus on environmental preservation at earlier stages of development.
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