Is economic growth a cause of or cure for the environmental pollution?

This paper examines the relationship between economic growth and environmental quality by exploiting the special conditions of the transition process. Specifically, a model of the income pollution relationship is developed which explicitly incorporates institutional factors along with conventional explanatory factors such as income level and population density used in previous studies.

Background information on the environmental Kuznets curve (EKC) concept, describing its determinants and considering the possible implications for the case of transition countries. The data, methodology and empirical findings of the analysis are the presented, before a discussion on the findings.

Findings include:

• transition countries with per capita incomes below the turning point as reported for 1997 are subject to a temporary increase in sulfur dioxide emissions when production levels increase, until the turning point of income per capita is reached, holding other factors constant
• transition countries pass through more pollution intensive development stages, the rapid increase in sulfur dioxide emissions at low income levels in transition countries is followed by a more gradual reduction after the turning point is reached
• the estimated effect of increases in population density is negative, supporting the view that more densely populated regions are likely to be more concerned with abating sulfur dioxide pollution for any given level of income than less densely populated regions
• the difference in the levels of per capita sulfur dioxide emissions at the turning point of income is about 2.34 times higher for transition countries
• the estimated coefficients on economic and political freedom lend support to the hypothesis that better market and democratic institutions result in lower levels of emissions, in transition countries, higher scores of economic and political freedom are associated with statistically significant decreases in sulfur dioxide emissions
• The effects of “narrow” measures of economic freedom (“use of markets” and “property rights security”) are mixed
• The results for measures of environmental institutions are mixed and difficult to explain

Conclusions include:

• countries with free-market and democratic institutions have lower levels of sulfur dioxide emissions for any given level of income, this is especially pronounced for transition countries
• international agreements and internal public initiatives are each associated with lower levels of sulfur dioxide emissions
• transition countries passed through more pollution intensive development paths than western
• transition economies that have developed free market institutions also have more environmentally-friendly incentive structures
• further detailed research is needed to fully understand the nature of the relationship between economic growth and the environmental pollution