Environmental Kuznets curves—real progress or passing the buck ...

Ecological Economics 25 (1998) 177–194 

ANALYSIS 

Environmental Kuznets curves—real progress or passing the 

buck? 

A case for consumption-based approaches 

Dale S. Rothman * 

Enironment Canada’s Enironmental Adaptations Research Group and the Uniersity of British Columbia’s Sustainable Deelopment R 

esearch Institute, B5-2202 Main Mall, Vancouer, BC V6T 1Z4, Canada 

Abstract 

Recent research has examined the hypothesis of an environmental Kuznets curve (EKC)—the notion that 

environmental impact increases in the early stages of development followed by declines in the later stages. These 

studies have focused on the relationship between per capita income and a variety of environmental indicators. Results 

imply that EKCs may exist for a number of cases. However, the measures of environmental impact used generally 

focus on production processes and reflect environmental impacts that are local in nature and for which abatement is 

relatively inexpensive in terms of monetary costs and/or lifestyle changes. Significantly, more consumption-based 

measures, such CO 2 emissions and municipal waste, for which impacts are relatively easy to externalize or costly to 

control, show no tendency to decline with increasing per capita income. By considering consumption and trade 

patterns, the author re-examines the concept of the EKC and proposes the use of alternative, consumption-based 

measures of environmental impact. The author speculates that what appear to be improvements in environmental 

quality may in reality be indicators of increased ability of consumers in wealthy nations to distance themselves from 

the environmental degradation associated with their consumption. © 1998 Elsevier Science B.V. All rights reserved. 

Keywords: Environmental Kuznets curves; Consumption; Trade; Environmental impact measures 

1. Introduction 

Will we grow out of our environmental problems? 

Is the fastest road to a clean environment 

* Tel: +1 604 8221685; fax: +1 604 8229191; e-mail: 

daler@sdri.ubc.ca 

along the path of rapid development and increased 

incomes? 

These are the underlying questions raised by 

research done on what is called the environmental 

Kuznets curve (EKC) hypothesis. The basic notion 

of this hypothesis is that resource use increases 

and environmental degradation worsens 

during the early stages of development, to be 

0921-8009/98/$19.00 © 1998 Elsevier Science B.V. All rights reserved. 

PII S0921-8009(97)00179-1

178 

D.S. Rothman / Ecological Economics 25 (1998) 177–194 

1 The name ‘Kuznets’ is from Simon Kuznets, the economist 

who postulated that increases in economic inequality in early 

stages of development are followed by decreases in later stages 

(Kuznets, 1955). The EKC hypothesis is also known as the 

inverted-U hypothesis because plotting a measure of resource 

use or environmental degradation, which follows this pattern, 

against a measure of development, usually per capita GDP, 

results in an inverted-U shape. 

followed by improvements in the later stages 1 . 

The fundamental implication appears to be that 

we can simply ‘grow’ out of any limitations related 

to natural resources or environmental 

degradation. To be fair, most of the researchers 

who have examined the EKC hypothesis and 

others point out that this will not ‘simply’ happen 

(Grossman, 1995; Grossman and Krueger, 

1992, 1994, 1996; Shafik, 1994). However, 

Panayotou (1993) is confident enough to state 

that EKC-type behavior is ‘an inevitable result 

of structural change accompanying economic 

growth’ and Beckerman (1992) relies on some 

of the results of this literature to state that ‘the 

strong correlation between incomes and the extent 

to which environmental protection measures 

are adopted demonstrates that, in the 

longer run, the surest way to improve your environment 

is to become rich’. 

In this paper, it is argued that the work 

done to date has actually been quite limited 

and, in some ways, counter-productive. Following 

on the discussion by Saint-Paul (1995) regarding 

Grossman (1995), the author focuses 

specifically on the premise that EKCs are attributable 

in some measure to changes in the 

production structure of economies. The study 

begins with a brief review of the literature on 

the EKC hypothesis and some of the concerns 

which have been raised over this work and the 

implications of its conclusions. It is then asserted 

that consumption is the principal driving 

force behind environmental impact and that 

there is much to be learned by taking a consumption- 

rather than production-based approach, 

as earlier studies have predominantly 

done. Because it is trade that allows for a divergence 

of production and consumption patterns 

within a region, this leads to a discussion 

of how to consider the role of trade in the 

context of the EKC hypothesis. The author 

then proposes possibilities for more appropriate 

measures of environmental impacts and considers 

the results using one such measure. 

2. A brief review of previous analyses of the EKC 

hypothesis 

Several authors have reviewed the literature 

on the EKC in some detail (Forrest, 1995; 

Stern et al., 1996; Ekins, 1997). In addition, 

there have been three policy forums on this issue 

spurred by an article in ‘Science’ authored 

by Ken Arrow and other luminaries (Arrow et 

al., 1995; Various, 1995, 1996a,b). 

The overall conclusion of the first set of 

studies on the EKC hypothesis is that some environmental 

indicators, e.g. access to clean water, 

urban sanitation and urban air quality, do 

indeed show improvement with increased income, 

with or without an initial period of deterioration. 

Other indicators, however, show 

continued worsening as incomes rise (e.g. carbon 

dioxide emissions and municipal waste per 

capita). The turning point at which environmental 

improvement begins varies from study 

to study, but most often falls in the income 

range typical of middle-income countries. Most 

environmental conditions that do improve with 

economic growth are those that have local impacts 

and abatement costs that are relatively inexpensive 

in terms of money and changes in 

lifestyle. Environmental problems that improve 

only at higher income levels or that continue to 

worsen as incomes rise generally create impacts 

that affect only a few people, e.g. solid waste, 

or that are separated by either space and/or 

time from those creating the pressures on the 

environment, e.g. carbon dioxide emissions. A 

number of the results also indicate a possible 

N-shaped relationship, whereby the indicator of 

resource use or environmental stress begins to 

worsen again at higher incomes (Grossman and 

Krueger, 1992, 1994; Shafik and Bandyopadhyay, 

1992; Grossman, 1995; de Bruyn and Opschoor, 

1997).

D.S. Rothman / Ecological Economics 25 (1998) 177–194 179 

The results and underlying assumptions of these 

studies have been subject to a number of concerns. 

These include, the statistical relationships 

examined (Stern et al., 1996), the focus on pollutant 

emissions and concentrations and the associated 

lack of work on the depletion of resource 

stocks (Arrow et al., 1995), the spatial and/or 

temporal separation between many economic activities 

and their environmental impacts (Diwan 

and Shafik, 1992; Ayres, 1995; Farber, 1995; 

Max-Neef, 1995; Mintzer, 1995), the limited scope 

of the measures of environmental degradation 

(Opschoor, 1995; Karr and Thomas, 1996; O’Neill 

et al., 1996; Orians, 1996; Pulliam and O’Malley, 

1996; Schindler, 1996) and the emphasis on economic 

growth rather than human well-being 

(Lash, 1995; Max-Neef, 1995; Pulliam and O’Malley, 

1996). 

Concerns have also been raised about the implications 

of the results, often by the researchers 

themselves. Many of the analyses consider only 

impacts on a per capita or per unit of economic 

activity basis, leaving open the question of 

changes in the total impact on the environment 

(Holtz-Eakin and Selden, 1992; Shafik and 

Bandyopadhyay, 1992; Panayotou, 1993; Selden 

and Song, 1994). Secondly, if the reductions to 

date are primarily due to a composition effect, 

whereby countries tend to increase the energy and 

pollution intensity of their imports, to what extent 

will the currently developing countries be able to 

replicate this pattern (Ayres, 1995; Farber, 1995; 

Grossman, 1995; Max-Neef, 1995; Saint-Paul, 

1995; Stern et al., 1996)? Thirdly, given the many 

potential irreversibilities resulting from resource 

use and environmental degradation, what will be 

the price paid along the way and is the necessary 

growth in the developing economies even possible 

(Holtz-Eakin and Selden, 1992; Panayotou, 1993; 

Selden and Song, 1994; Farber, 1995; Schindler, 

1996; Stern et al., 1996; Roberts and Grimes, 

1997)? 2 Finally, given that most of the researchers 

acknowledge the changes in social and political 

institutions required to bring about a decrease in 

the impact of economic activity on the environment, 

further analysis will be required to provide 

useful insights on how to best bring these about 

(Lash, 1995; Munasinghe, 1995; Daily et al., 1996; 

Fuentes-Quezada, 1996; Karr and Thomas, 1996; 

Ludwig, 1996). 

3. Production-based versus consumption-based 

approaches to examining the EKC hypothesis 

It is the second of these concerns, that of the 

importance of changing composition, that is addressed 

in this paper. Whereas most of the analyses 

have focused on the environmental impact 

resulting from production within a country, it is 

more appropriate to consider the impacts stemming 

from consumption activities. It is possible to 

draw a parallel between the current discussions of 

the EKC, which tend to focus on production and 

a longer standing debate about the sources of 

human impact on the environment, which emphasizes 

consumption. However, the resulting conclusions 

and interpretations differ significantly. 

3.1. The production-based approach 

Grossman and Krueger (1992) speak of the 

scale of economic activity, the composition of 

economic activity and the techniques of production 

in examining the possible reasons behind the 

inverted-U shape characteristic of the EKC 3 .Itis 

generally argued that the changing composition of 

production combined with reductions in the 

amount of energy and resources used and pollution 

produced per unit of production are the 

driving forces behind the EKC relationship 

(Grossman and Krueger, 1992, 1994; Radetzki, 

1992; Panayotou, 1993; Grossman, 1995). As 

Figs. 1 and 2 illustrate with time series and cross- 

2 Holtz-Eakin and Selden (1992) and Selden and Song 

(1994) uses their results to forecast future emissions of carbon 

dioxide, sulfur dioxide, suspended particulates, oxides of nitrogen 

and carbon monoxide. Stern et al. (1996) use the results of 

Panayotou (1993) to estimate future rates of deforestation 

and sulfur dioxide emission. Each of these studies concludes 

that emission and forest destruction at a global level will 

increase significantly in the near future, with stabilization and 

decline occurring only in the long run, if at all. 

3 Panayotou (1993) discusses this decomposition.

180 


Fig. 1. Historical shares of GDP per sector for the US and the UK (Data from Maddison (1989, 1995)). 

sectional data, respectively, as economic development 

proceeds, i.e. income levels increase, the 

dominant sector tends to shift from agriculture to 

industry and then to services. The first shift is 

likely to result in increased environmental impact, 

whereas the latter in reduction. 

Adding to this seemingly inevitable change in 

the structure of economies are improvements in 

technology over time and changing demands from 

the people within countries as their incomes rise. 

The latter effect presumes that environmental 

quality is characterized as a ‘normal’ good, i.e. the 

demand for environmental quality rises as consumers’ 

income rises. This will have an impact on 

consumers’ preferences, which can have a direct 

effect on the structure of the economy via purchases 

in the market. Furthermore, consumer 

preferences can have a strong indirect impact via 

the policy arena by calling for the implementation 

of various taxes, tariffs, subsidies and regulations 

(Komen et al. (1996) for an empirical example of 

work in this area). Finally, to satisfy this increasing 

demand for a cleaner environment from the 

populace, it is argued that nations have a greater 

capacity to remedy environmental problems as 

their economies develop, and also more rapid 

growth will mean a more rapid turnover of an 

older, dirtier technology stock with a newer, 

cleaner one 4 . 

Many of these effects are implicit in the empirical 

work to date on the EKC. Very little explicit 

work has been undertaken to separate out the 

importance of the effects of changing composition 

and changing technology, however. A time trend 

intended to capture technology improvements has 

also been incorporated in some of the research 

(Grossman and Krueger, 1992, 1994; Shafik and 

Bandyopadhyay, 1992; Cropper and Griffiths, 

4 See Radetzki (1992) and López (1994) for further discussions 

on why growth may actually benefit the environment, 

and also Diwan and Shafik (1992) for a discussion on why 

poor nations borrow against nature rather than against future 

income. Sen (1995) comments on the importance of a binding 

constraint—subsistence—in determining choices that may 

have environmental repercussions.


Fig. 2. GDP by Sector 1993 (World Resources Institute, 1996). 

1994; Grossman, 1995; Suri and Chapman, 1996). 

Most of these have concluded that there has been 

a decline in environmental degradation over time, 

as expected. On the other hand, Grossman and 

Krueger (1994) find an increasing trend for urban 

particulate matter and a number of water pollutants, 

Shafik and Bandyopadhyay (1992) see one 

for fecal coliform concentrations in water, and 

Cropper and Griffiths (1994) get mixed results 

looking at deforestation rates. Grossman and 

Krueger (1992) do discuss changing composition, 

but look at this principally in a separate discussion 

of international trade, arguing that the data 

do not support the hypothesis that differences in 

environmental regulation are an important determinant 

of trade patterns. (A broader review of the 

trade literature suggests that this conclusion is not 

accepted as a rule, however (Low, 1992; Folke et 

al., 1994; OECD, 1994). Due to its importance, 

this issue is returned to in more depth later in this 

paper.) 

Selden et al. (1996) and (de Bruyn, 1997) 

provide notable exceptions in their decomposition 

of observed changes in aggregate and per capita 

emissions. Using data for a number of air pollutants 

in the US, and going beyond Grossman and 

Krueger, Selden et al. (1996) further decompose 

the technique effect into energy efficiency, energy 

mix and other technique effects, i.e. changes in 

emissions per unit output. They conclude that the 

greatest effects have come from the technique 

effect, particularly the other technique effect. 

Changes in sectoral composition have also had a 

noticeable effect, however, especially for particulate 

matter and sulfur oxides. de Bruyn (1997) 

examines sulfur dioxide emissions in The Netherlands 

and Western Germany. He also concludes 

that shifts in technology have been dominant in 

explaining changes in these emissions. 

3.2. The consumption-based approach 

Ehrlich and Holdren (1971), Holdren and 

Ehrlich (1974) introduced the I=PAT identity 

(commonly referred to as the Ehrlich equation), 

more than a quarter of a century ago. This iden-

182 


tity relates environmental impact to population, 

affluence and technology. Ekins and Jacobs 

(1995) and Dietz and Rosa (1994), among others, 

modify this identity to speak of consumption 

specifically rather than affluence, yielding the 

equation I=PCT. The latter two terms can be 

expressed as GDP per capita and impact per unit 

of GDP. The composition of consumption has 

been included in some of the more recent formulations 

by stating consumption and technology as 

vectors rather than scalars (Amalric (1995), Ekins 

and Jacobs (1995), Raskin (1995) for other recent 

work considering the utility of and potential respecifications 

of the IPAT relationship). 

Although subject to some criticism and various 

revisions over the years, the IPAT relationship 

provides a basic reference for considering the 

impacts of human activity on the environment. 

The parallels between scale, composition and 

technique and population, consumption and technology 

are fairly obvious and may support the 

argument that either a production- or consumption-based 

approach to examining the EKC hypothesis 

would be equivalent. A fundamental 

philosophical problem exists, however, in adopting 

a production-based approach in exploring a 

hypothesis such as the EKC. As Rees (1995), 

Daly (1996) and Duchin (1998) argue, ‘‘most environmental 

degradation can be traced to the behavior 

of consumers either directly, through 

activities like the disposal of garbage or the use of 

cars, or indirectly through the production activities 

undertaken to satisfy them’’ Duchin (1998). 

Goods and services will not be produced, bought, 

sold and traded across borders, unless there is a 

demand for them 5 . 

Ekins (1997) raises specific reservations about 

using production-based approaches when a significant 

share of the changes in environmental 

impact are attributed to changing composition. 

‘‘If the shift in production patterns has not been 

accompanied by a shift in consumption patterns, 

5 This study leaves aside the issues of desired versus effective 

demand and the creation of artificial wants at this time. Suffice 

it to say that effective demand (be it for ‘true’ or ‘artificial’ 

wants), i.e. that which can actually result in the production of 

goods and services, is what the author is speaking of here. 

two conclusions follow: (1) environmental effects 

due to the composition effect are being displaced 

from one country to another, rather than reduced; 

and (2) this means of reducing environmental 

impacts will not be available to the latest-developing 

countries, because there will be no countries 

coming up behind them to which environmentally-intensive 

activities can be located. 

Of course, levels of resource use and environmental 

degradation are mediated by a number of 

factors. These include the technology used to 

produce and deliver the commodities to the user, 

the disposal of by-products generated in their 

production and consumption and the ultimate 

disposal of the commodities themselves 6 . Thus, 

one must consider these in conjunction with the 

scale and composition of consumption. The author 

will discuss the relationships between these 

later in the section on better measures of environmental 

impact. For the remainder of this section, 

though, the author would like to look at data on 

consumption to get a sense of its changing 

amounts and composition with income levels. 

Fig. 3A and B shows the quantities of per 

capita consumption for eight categories of consumer 

goods, accounting for all consumer expenditures 

for the year 1985 provided by the United 

Nations International Comparison Programme 

(United Nations 1994). The unit for each commodity 

is not a traditional measure such as kg, 

but rather the quantity of a commodity which can 

be bought for 1 $US at average international 

prices 7 . The author shows simple second order 

polynomials drawn through these data in order to 

6 In an interesting interpretation of the disposal process, 

Hawken (1995) notes that what we have is not a consumption 

problem, but rather a non-consumption problem, in that 

‘‘most of what we make cannot be consumed by anything at 

all’’. In a similar vein that clouds our interpretation of particular 

terms, Rees (1990) points out that what we consider 

economic production is ‘‘actually consumption, at best involving 

the conversion of ecological capital into man-made capital’’. 

7 The most recent year for which consistent data are available 

for a global set of countries is 1985. Data from 1993 will 

be available some time in 1997. For more details on the 

International Comparison Programme data (United Nations, 

1994; Rothman, 1993).


Fig. 3. Consumption by commodity category 1985, Part A (United Nations, 1994). Consumption by commodity category 1985, Part 

B (United Nations, 1994).

184 


Table 1 

Quadratic fits to consumption data 

Commodity 

Fitted equation a Adjusted r 2 

Turning point b 

Food, beverages, and 79.36 (1.7)+0.21 (10.8)×(GDP/capita)−7.98×10 −6 (6.1) 

tobacco 

(GDP/capita) 2 

Clothing and footwear 58.41 (2.6)+0.04 (4.4)×(GDP/capita)−5.61×10 −7 (0.9) (GDP/ 

0.8893 12 889 

0.7890 35 263 

0.8158 23 278 

0.9197 

Gross rent, fuel and power −44.62 (0.5)+0.20 (5.4)×(GDP/capita)−4.25×10 −6 (1.7) 

capita) 2 

House furnishings and 0.16 (0.0)+0.04 (5.7)×(GDP/capita)+1.79×10 −7 (0.4) (GDP/ 


operations 

capita) 2 

Medical care and services −101.81 (1.6)+0.12 (4.6)×(GDP/capita)−1.30×10 −6 (0.7) 0.8270 47 171 

Transport and communicacapita) 


55.29 (1.9)+0.00 (0.1)×(GDP/capita)+4.93×10 −6 (6.1) (GDP/ 0.9236 

tions 

2 

Recreation, entertainment, 20.03 (0.4)+0.10 (4.5)×(GDP/capita)+1.17×10 −7 (0.1) (GDP/ 0.8684 

education, etc. capita) 2 

Other −39.08 (0.6)+0.06 (2.2)×(GDP/capita)+2.05×10 −6 (1.1) 0.7652 

0.4949 

13 169 

Grains and starches 80.99 (2.7)+0.07 (5.4)×(GDP/capita)−3.44×10 −6 (4.0) (GDP/ 

9830 


Meat and animal products 3.42 (0.2I)+0.08 (9.2)×(GDP/capita)−3.03×10 −6 (5.1) (GDP/ 0.8591 

capita) 2 

Other foods, beverages and 

capita) 2 

14.27 (0.5)+0.06 (5.7)×(GDP/capita)−1.91×10 −6 (2.5) (GDP/ 0.7700 16 357 

tobacco 

capita) 2 

a Equations fitted to data provided by phase V of the United Nations International Comparison Programme (United Nations, 1994). 

Values in italic and parentheses are absolute values of the t-statistics for the coefficients. 

b Turning points only calculated for equations with negative coefficients on GDP 2 . 

provide an initial indication whether these relationships 

show an inverted-U type of behavior 

that might support the EKC hypothesis. Table 1 

summarizes these relationships. Although composition, 

in terms of shares, does change with income, 

this is due principally to differences in 

relative growth between categories and not actual 

declines in consumption of any single commodity. 

The only commodity that displays an inverted-U 

shape is food, beverages, and tobacco 8 . Breaking 

this down into three categories—grains and 

starches, meat and animal products and other 

foods—shows that this is principally due to a 

decline in the consumption of grains and starches, 

arguably the least environmentally destructive 

food items (Fig. 4 and Table 1). 

8 The author defines an inverted-U shape as requiring a 

negative coefficient on squared GDP per capita with a t-statistic 

greater than 2 in absolute value and a turning point that 

falls within the range of the data. 

Adriaanse et al. (1997) have estimated the total 

material requirements, including hidden flows, for 

the economies of the United States, The Netherlands, 

Germany and Japan for the past two 

decades. Their data show that, although there has 

been a pattern of declining material intensity, in 

terms of material requirements per unit of GDP, 

per capita natural resource requirements have 

continued to rise. An important caveat in using 

these data, however, is that the materials required 

to meet export demands are not currently deducted, 

so the measure does not yet provide a 

completely balanced picture of the requirements 

needed to meet the consumption demands of a 

particular country. de Bruyn and Opschoor (1997) 

and Suri and Chapman (1998) are the only researchers 

to date who have noted the importance 

of taking a consumption-based approach to analyzing 

the EKC hypothesis. In each case, the 

researchers find very little evidence to support a


Fig. 4. Consumption of food commodities 1985 (United Nations, 1994). 

conclusion of decreasing environmental impact at 

higher levels of income. 

4. The issue of trade 

International trade provides the means by 

which national patterns of production and consumption 

can become disassociated within a nation. 

This becomes a major issue of consideration 

in examining the relationship between economic 

growth and environmental impact. This was 

hinted at in the earlier quote from Ekins (1997) 

and is further emphasized by Pearce and Warford 

(1993), Diwan and Shafik (1992) in their analyses 

of the relationships between trade and the environment: 

‘‘It is perfectly possible for a single 

nation to secure sustainable development—in the 

sense of not depleting its own stock of capital 

assets—at the cost of procuring unsustainable 

development in another country’’ (Pearce and 

Warford, 1993). ‘‘The availability of technologies 

that delink local and global pollution eliminated 

many of the automatic benefits for the global 

environment from addressing local concerns. The 

North can now achieve improvements in local 

environmental quality while continuing to impose 

negative externalities internationally’’ (Diwan and 

Shafik, 1992). 

Much has been written in recent years on the 

relationship between trade, trade liberalization, 

environmental quality, environmental policy and 

economic performance 9 . This has been spurred in 

large part by negotiations surrounding the GATT 

and NAFTA. In the context of this paper, the key 

issue is not the economic logic of trade, but 

simply to what extent are changes in resource use 

and/or environmental degradation with income 

level due to shifting pollution and resource intensive 

production across borders. 

The notion that pollution and resource intensive 

production will move from richer to poorer 

9 For the interested reader, the author would recommend 

the recent collections of essays by Low (1992), Folke et al. 

(1994), OECD (1994).

186 


countries is often referred to as the ‘pollution 

haven hypothesis’. Before discussing the logic behind 

this hypothesis, the author wants to be careful 

to point out that, for this argument, only a 

weak version of this argument has to hold. To the 

extent that differences in the environmental impact 

of production processes between domestic 

and imported commodities can be accounted for, 

what is important is the changing ratio between 

domestic consumption and domestic production. 

Even if domestic production stays the same or 

increases, if domestic consumption rises faster, 

then some of the increase in consumption must be 

met by importing goods (ignoring changes in inventories). 

This will be missed in a productionbased 

measure of environmental degradation, 

resulting in a bias toward acceptance of the EKC 

hypothesis. If production processes are dirtier in 

exporting countries, this further increases the bias. 

Of course, this bias can also work the other way 

under different circumstances, e.g. cleaner production 

processes in exporting countries or faster 

growth in production than consumption. 

The reasoning behind the pollution haven hypothesis 

follows from the same logic that is proposed 

to explain, in part, the existence of an 

EKC. In this case, however, the demand for environmental 

quality, which is assumed to rise with 

increased income levels, does not lead to a shift to 

a cleaner production process in the country where 

the demand is generated, but rather to a movement 

of the production process to a location 

outside of the country. Because there is a strong 

incentive to carry out processing stages as near as 

possible to the source of the raw material, as the 

best-quality resources are exhausted in the industrialized 

countries, there is a further tendency for 

many traditionally energy- and pollution-intensive 

activities to migrate to poorer countries (Ayres, 

1996). It is also often assumed that poorer countries 

have cleaner environments because of less 

previous development and, therefore, will suffer 

less damage from any given reduction in environmental 

quality. Finally, the argument has been 

made that poorer people suffer fewer economic 

costs from the health effects of poorer environmental 

quality. This relies on the fact that economic 

losses due to health problems are often 

calculated as being directly related to income levels. 

This is a practice that has been commonly 

used by economists, leading at times to severe 

criticism, as in the reaction to the leaked memo 

written by World Bank economist Lawrence Summers 

(The Economist, 1992) and the recent estimates 

of the economic costs of global warming 

summarized by the IPCC (Pearce et al., 1996). 

At the same time, it should be noted that 

several authors have hypothesized that, due to 

their comparative advantage in labor vis-à-vis 

man-made capital, the latter of which is usually 

associated with dirtier industries, these industries 

should actually migrate away from poorer countries 

to wealthier ones. Because the latter tend to 

have stricter environmental standards, trade 

should lead to lower overall levels of pollution 

and resource degradation (Birdsall and Wheeler, 

1992; López, 1992). Little empirical work has 

been done on this hypothesis and there is very 

little evidence supporting it. 

To the extent that the pollution haven hypothesis 

is true, a city, region, or nation, via trade, can 

create an illusion of sustainability (Rees, 1993). 

From a thermodynamic perspective, a locale acts 

as a dissipative structure, i.e. increasing the order 

in the local system at the expense of greater 

disorder in the larger system in which it is embedded 

(Hornburg, 1992). In order to describe this 

expropriation of resources elsewhere in space, 

terms such as ‘shadow ecologies’ (MacNeil, 1992) 

and ‘appropriated carrying capacity’ (Wackernagel 

and Rees, 1995) have begun to be seen in 

the literature. 

Several studies have explored the existence of 

pollution havens, including Birdsall and Wheeler 

(1992), Dean (1992), Low and Yeats (1992), Lucas 

et al. (1992), Radetzki (1992), Copeland and 

Taylor (1994, 1995), Benarroch et al. (1995). The 

results of these studies are mixed, but most do 

point to some validity in the general hypothesis. 

Low and Yeats (1992) point to an expansion in 

the share of polluting industries in the exports of 

developing countries for the period 1965–88, as 

well as a greater overall dispersion of points of 

origin for polluting industries than for cleaner 

ones (no results were presented for an analysis 

using country of destination rather than origin).


Thus, it appears that the developed countries are 

less likely to ‘farm out’ cleaner industries. Birdsall 

and Wheeler (1992), in examining the toxic intensity 

in industry for Latin American countries from 

1960–88, report a migration of industries with 

higher toxic intensities. They are careful to point 

out that this is mostly to countries with relatively 

closed economies, as countries with more open 

economies are more susceptible to external influences 

and, therefore, pay more attention to environmental 

regulations. Also of note, their results 

indicate that the overall toxic intensity of the 

economy rises with income in all countries. Lucas 

et al. (1992), in examining scale and composition 

effects on toxic intensity using data over the same 

period also find support for the displacement 

hypothesis. They note also that more open 

economies tend to be cleaner. They do find a 

weak indication of an EKC for pollution emission 

intensity with rising income, but this is principally 

a reflection of the decreased importance of the 

manufacturing sector as a whole in the economy. 

Also, as Ramón López points out in his comments, 

the absolute levels of pollution continue to 

rise (Lucas et al., 1992). Adriaanse et al. (1997) 

present data that the US, Germany, Japan and 

The Netherlands rely on imports to meet 5, 35, 

over 50 and more than 70% of their total material 

requirements, respectively. Again, these may be 

somewhat misleading as the materials required to 

meet export demands are not currently deducted. 

Two recent empirical studies begin to give more 

insight into the net balance of trade in environmental 

pollution and resource use. Antweiler 

(1996) uses sectoral pollution intensities (tons per 

unit output) derived from US data (United States 

Environmental Protection Agency, 1995) and sectoral 

trade data derived from Statistics Canada 

(1994) to estimate the net embodied levels of six 

air pollutants—sulfur dioxide, carbon monoxide, 

nitrogen dioxide, lead, particulate matter under 10 

m and volatile organic compounds—for 164 

countries in 1987. The data only consider the 

composition of trade, as the same sectoral intensities 

are applied to each country. Although understandable 

due to a lack of data, this results in a 

bias ‘favoring’ countries with dirtier technologies 

than the US and ‘penalizing’ countries with 

cleaner technologies. Secondly, since the pollution 

coefficient data are developed from plant-specific 

data, the analysis discounts primary resource sectors, 

which do not generally have ‘plants’ but 

make up a relatively larger share of exports for 

developing countries. A plot of per capita data 

against GDP per capita, shown in Fig. 5, reveals 

a pattern of a few major exporters of embodied 

pollution, particularly Ireland, Singapore, West 

Germany and Japan, with no clear relationship 

between net exports and income 10 . 

Atkinson and Hamilton (1996), alternatively, 

examine net dollar flows for 95 countries in 1985 

related to trade in commercial natural resources—crude 

oil, timber, zinc, iron ore, phosphate 

rock, bauxite, copper, tin, lead and nickel. 

Fig. 6 shows a strong tendency among non major 

oil exporters for an increase in net resource imports 

per capita as countries become wealthier. 

Oil exporting countries show a different pattern, 

but this can be explained by the fact that oil 

exports significantly determine average income in 

these nations. 

It is somewhat surprising that little or no empirical 

work has been done looking at trade in the 

context of the EKC hypothesis. The original analysis 

by Grossman and Krueger (1992) was an 

exercise to consider the potential impacts of the 

NAFTA, but even in their analysis their treatment 

of trade was separate from their EKC analysis. 

Suri and Chapman (1998) include the shares of 

manufactured goods in imports and exports, as 

well as an interactive term between manufacturing 

imports and income. These are intended to compensate, 

in part, for differences between the structure 

and production within a country, where the 

second term is included to capture the changing 

nature of imports as incomes rise. Kaufmann et 

al. (1998) includes exports per unit GDP of iron 

and steel in their estimation for the same reasons. 

Notably, both studies conclude that trade makes a 

significant contribution to the shape of curves 

relating resource use and environmental quality 

10 Data from countries with under 1 million persons were 

dropped, as they were considered unrepresentative and resulted 

in large outliers. The figures for the other pollutants are 

similar, but not shown.

188 


Fig. 5. Net pollution exports—sulfur dioxide 1987 (Antweiler, 1996). 

versus income levels, and neither study finds support 

for the EKC hypothesis. de Bruyn and Opschoor 

(1997) briefly discuss trade and import 

substitution, but do not incorporate it into their 

analysis. 

5. Better measures of environmental impact 

If one accepts the arguments to this point, the 

question then arises—what are appropriate, or at 

least better, measures of environmental impact? 

Ekins (1997) examines an aggregate indicator developed 

by the OECD which includes: (1) CO 2 , 

SO 2 ,NO x emissions per capita; (2) water abstraction 

per capita; (3) percentage of population with 

sewage treatment; (4) protected areas as a percentage 

of total area; (5) imports of tropical timber 

and cork; (6) threatened species of mammals 

and birds as a percentage of all such species in the 

country; (7) generation of municipal solid waste 

per capita; (8) energy intensity (primary energy 

per unit of GDP); (9) private road transport 

(passenger kilometers in private vehicles per capita); 

and (10) nitrate fertilizer application per km 2 

of arable land and permanent cropland. As might 

be expected, examining the relationship between 

this indicator and income levels, Ekins finds no 

support for the EKC hypothesis. 

Is it possible to go further to more explicitly 

and completely link a measure of environmental 

impact to consumption? The study has presented 

various data on consumption and the net trade. 

These data lend no support to the EKC hypothesis 

when examined as a function of income level. 

They make no adjustment, however, for differences 

in the ways in which these goods and services 

are produced, transported, used and 

ultimately disposed of in different countries and 

over time. With an increasingly globalized economy, 

it could be argued that the inter-country 

differences are small enough as to be insignificant. 

Even if this were to be accepted, though, there 

would still be the question of how the environmental 

impacts have changed over time and how 

they differ across goods, services and resources, so


Fig. 6. Net resource depletion 1985 (Atkinson and Hamilton, 1996). 

as to allow aggregation across different consumption 

bundles. 

Determining the environmental impact for a 

particular good, service, or resource is an exceedingly 

difficult task. Of key importance here is the 

inclusion of embodied impacts that arise from 

production, transportation and disposal (Adriaanse 

et al., 1997). There has been relatively little 

work in this area other than on life-cycle energy 

use (Robinson, 1990; OECD and IEA, 1992). 

Wyckoff and Roop (1994) study of embodied 

carbon and Chapman (1991) work on copper in 

automobiles provide examples that look beyond 

energy use. 

Several recent efforts have been, and continue 

to be made to conceptually and empirically 

broaden this work to develop aggregate measures 

of environmental impact and/or resource requirements 

of various lifestyles. These include: ecotoxicity 

(Ayres and Marinas, 1995); environmental 

utilization space (Opschoor, 1992); ecological 

footprints/appropriated carrying capacity (EF/ 

ACC) (Rees and Wackernagel, 1994); material 

intensity per unit service (MIPS) (Schmidt-Bleek, 

1993); the sustainable process index (Krotscheck 

and Narodoslawsky, 1996); and total material 

requirements (Adriaanse et al., 1997). Each approach 

has its own nuances, but basically all are 

attempts to provide a physical measure of environmental 

impact from the perspective of achieving 

sustainability by not drawing down stocks of 

natural capital in order to meet current 

consumption. 

The empirical work using these measures is in 

its infancy and will undoubtedly require refinement. 

However, it should be possible to use these, 

even in their present incarnations, to provide 

more defensible indications of the relationship 

between economic development and environmental 

impact. The empirical work to date, although 

limited and arguably conservative in its estimates 

of human impacts on the Earth, raises a number 

of serious concerns. Rees (1996) estimates that to 

sustainably support the present world population,

190 


Fig. 7. Ecological footprints vs. real GDP per capita (Wackernagel et al., 1997). 

if everybody were to live at current North American 

standards, would require three times the existing 

global stock of ecologically productive 

cropland, pasture and forest land. Kranendonk 

and Bringezu (1993) calculate that annual consumption 

of orange juice in western Germany 

requires more than three times the total domestic 

fruit growing area of the region. McLaren (1996) 

estimates that the UK will need to reduce consumption 

of timber, cement, pig-iron, aluminum 

and chlorine by 64, 69, 83, 84 and 100%, respectively, 

to reach sustainable levels. 

As an example of how one can use these new 

measures to test the EKC hypothesis, Fig. 7 

shows data for the ecological footprints of 52 

nations estimated by Wackernagel et al. (1997) 

plotted against GDP per capita. This measure 

estimates the land and water area required to 

sustainably provide for the average per capita 

consumption in each nation. It includes food consumption, 

wood consumption, direct and embodied 

energy and built area. Table 2 shows the 

results for four alternative specifications relating 

the ecological footprints per capita to GDP per 

capita. Linear and log-log specifications fit the 

data equally well. Adding a quadratic term, following 

the EKC hypothesis, does not represent an 

improvement in either case. Even if it were accepted, 

the estimated turning point of almost 

$22000 for the quadratic specification is outside 

the range of the empirical data and the logquadratic 

specification results in no turning point 

at all. 

6. Conclusions 

Have we been growing out of our environmental 

problems? Since it has been argued that we 

have yet to appropriately address this question, 

the answer would have to be that we really cannot 

say. On examination of the evidence, however, the 

answer is no. Can we do so? Hopefully. In fact, it 

can be argued that we need to work on finding 

ways to help richer nations reduce their impact 

and poorer nations ‘tunnel’ through or ‘leapfrog’


Table 2 

Various fits to ecological footprint data 

Functional Fitted equation a Adjusted r 2 Turning point b 

form 

Linear 0.896 (5.4)+3.77×10 −4 (12.0) (GDP/capita) 

0.7379 

Quadratic 0.626 (2.8)+5.60×10 −4 (5.3) (GDP/capita)−1.30×10 −8 (1.8) (GDP/cap- 0.7496 21 587 

Log-linear −4.193 (9.2)+0.619 (11.9) ln(GDP/capita) 

0.7322 

ita) 2 

Log-quadratic −0.046 (0.0)−0.398 (0.5) ln(GDP/capita)+0.061 (1.3) (ln(GDP/capita)) 2 0.7364 

a Equations fitted to data provided by Wackernagel et al. (1997). Values in italic parentheses are absolute values of the t-statistics 

for the coefficients. Due to heteroskedasticity, weighted regressions were used for the linear and quadratic forms. 

b Turning points only calculated for quadratic equations with negative coefficients on the quadratic term. 

past the periods of increasing environmental impact 

and resource use, so as to avoid increasing 

their impacts in the first place (Goldemberg et al., 

1988; Pearson, 1994; Munasinghe, 1995; Ferguson 

et al., 1996; Karr and Thomas, 1996; Schindler, 

1996). 

This leaves us with the question of what needs 

to be done to ensure that the answer to the second 

question above is yes, which requires, in part, a 

better examination of the first question. This task 

requires a number of parallel efforts. First, we 

must more carefully analyze the relationship between 

economic activity and environmental impact. 

We must understand that solving 

environmental problems means more than handing 

them off, i.e., passing the buck to people in 

other places or in other times. It must be understood 

what we mean by growth, i.e. that we make 

a clear distinction between economic growth and 

growth in human well-being. For all of these, we 

need to link analyses of this issue to other areas of 

research that are providing important insights, 

particularly that on industrial ecology and dematerialization, 

the definition and measurement of 

indicators of economic, human and environmental 

well-being and the relationships between trade 

and the environment. 

From a policy perspective, it is imperative to 

recognize that the necessary changes are possible, 

but not inevitable. This has been expressed explicitly 

in almost all of the work on the EKC to date. 

As Radetzki (1992) states, even if one does buy 

the basics of the EKC hypothesis, the changes 

that have occurred and will occur ‘‘will not be the 

result of environmental laissez-faire. Many of the 

behavioral adaptations, sometimes quite painful, 

have been prompted by social mandates overriding 

the freedom of unregulated markets’’. However, 

the opinion of Beckerman (1992), among 

others, that economies react appropriately without 

policy intervention and that the surest way to 

achieve environmental quality is to get rich are 

still around and do carry weight in policy circles. 

Thus, it is important that, as researchers, we not 

only improve the substance of our analyses, but 

that we also improve the communication of our 

results and the assumptions behind these. 

Acknowledgements 

The author would like to thank Sander de 

Bruyn, Thomas Selden and an anonymous reviewer 

for their insightful comments on earlier 

versions of this paper. The paper is much improved 

as a result, with all remaining errors and 

opacity being the sole responsibility of the author. 

Also, the data underlying the analyses presented 

are available from the author upon request. 

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