Does economic growth hurt the environment?

Lets talk trash!

Yuli Weng, Stacey Liang, Lynn Huang, Fannie Lin, Nancy Kao
July 1, 2009

Abstract
This paper discusses the relation between economic growth and environmental issues
of Taiwan, Japan and Korea by using the Environmental Kuznets Curve (EKC)
model. We researched the influential factors of the relationship between environment
and economic growth by examining garbage generation data, GDP per capita data,
policies and Service Sectors Share in GDP, using the Least Square method. The
regression results show that these factors have significant influence on garbage
generation; however, the patterns of the relationships differ among the three countries.
In Taiwan and Korea, in accordance with the theoretic prediction, an inverse U shape
EKC is found. In Japan, however, garbage generation does not seem to be affected by
economic growth. The disparity may due to the differences in structures of
economies, policies adopted and stages of economic development in those countries.

Undergraduate students, Department of International Business, National Chengchi University, Taipei, Taiwan.

__________________________

Introduction

The rapid growth of economy has brought prosperity and happiness to many
people, yet it also brought a wake-up call to people with environmental consciousness
in recent years. Economists have exhausted the issues about economy. However, it
was not until the last decade (i.e., 1990s) did some of them start to feel concerned
about environment and to study the pollution-income growth relationship which has a
lot to do with human activities. Among those studies, Environmental Kuznets Curve
(EKC) theory is the one we would like to focus on in this paper. This theory is named
after Simon Kuznets who asserted the relationship between income inequality and
economic development Kuznets in 1955. In this theory, income inequality increases
over time while a country is developing, then after a critical average income is
attained, it begins to decrease. There is an inverse U shape presented in a graph as
below:

The logic of EKC is quite similar to that of Kuznets theory. When the pillar of a
countrys economy changes from agriculture to polluting industry, pollution grows
rapidly because high priority is given to increase the output of manufacturing, and of
course people are more interested in jobs and income than clean environment
( Dasgupta et al., 2002). And the rapid economic growth tends to result in catastrophic
abatement of natural resources and to generate all kinds of pollution which in turn
exacerbates environmental problems. But with rising income and better education
become aware of the importance of a clean environment. So the regulatory institutions
and the environmental policies conducted become more restrictive and effective to
manufacturers, which encourage people to go on the path of clean service economy.
To shed light on EKC, it places a pollution indicator on the vertical axis of the graph
and income per capita on the horizontal axis. Finally, our motivations are as followed:

To fully understand the natural relationship between economic growth and

environmental quality (Coondoo and Diana, 2002) before adopting a policy.

To see whether the economic growth is a cause of environmental crisis or a

reachable solution to it.

To systematic a process of how individuals react to environmental problems

when facing the changes of human activities was found.

To see whether the garbage policies are more influential compared to

policies for air pollution.

To find a way to obtain eternal sustainability.

In the second section of this paper, we provide the related literature to discuss
further about EKC. The third section provides the methodology we use. Empirical
findings are included in the fourth section. As to fifth section, we put some remarks
and discussions in it.

Related Literature

In order to fully comprehend the EKC, environmental problems and the

relationship between the two, we have studied numbers of papers discussing these
issues. The following are a few interesting papers and their findings. First is a paper
written by Jheng in 2008 discussing the economic and environmental of Taiwan,
Japan, and Korea by using CO2 and GDP data. The author finds the relationship
between CO2 intensity and GDP per capita exhibits an U-shaped pattern in Taiwan
and Korea, while a downward slope in Japan. When researching CO2 intensity and
GDP per capita, the author also finds industry structures and energy supply strategies
affective to patterns between economics and environment
In another paper written by Opschoor and van den Bergh in 1998, the authors
applied CO2, NOx and SO2 emissions data in different Euro countries to the EKC and
found some problems in the EKC model. First of all, there is no permanent solution
for problems causing pollution in the EKC. Environmental issues can only be moved

and not be solved. In other words, EKC can only be used regionally, but not globally.
Furthermore, EKC can only be used to describe current economic phenomenon, it is
not able to predict future phenomenon.
The third paper is a paper written by Barua and Hubacek in 2008. The authors
used water pollution data in 16 states of India to discuss the EKC model. What they
found was similar to the first paper, indicating income status may not be the only
factor influencing the water pollution issue in India. From the data Barua and
Hubacek found an interesting pattern for water pollution and income relations. Water
pollution and income have an N-shaped relationship in wealthy cities; while they have
inverse U-shaped relationship in poorer cities. This result indicates that EKC can only
explain environment-economic relation in poor cities but cannot represent the
environment-economic relation in wealthy cities.
The last paper is written by Dinda in 2004. The author summarized past papers
and literatures of EKC; organizing the historyconceptual insightstheoretical
reviewsEmpirical evidencespolicy implication and future research for EKC. Firstly
the author summarized that EKC is a reminder that the stages and strategies of
economic and government are closely related to our environment. Secondly, in order
to control the environmental issues we must fully understand the stages and influential
factors of the EKC.

After studying these related papers, we have come to some questions we would
like to address to in our research. The first question is whether the garbage-GDP
relationship in Taiwan, Japan and Korea in accordance with the EKC prediction, and
if so, how should we model the relationship? If not, what would be the reason? The
second Question is what factors affect the relationships between garbage generation
and GDP per capital and how can we describe these influences? We will discuss these
issues further on in our paper.

Methodology

According to the general concept of EKC, we want to discuss whether there is an

inverse U shape relationship between garbage generation and the economic
development of a country. By using the least square method, we develop the
following estimated regression equation:
(Here we test the hypothesis by using a general reduction form model as equation.)
E = + 1Y + 2Y2 + 3V
Where E is the garbage amount indicator, we put yearly garbage clearance per
capita in this space. Y is the independent variable and it denotes the GDP per capita. V
is other variable, we use service sectors share of GDP. Here, is the intercept of this
equation, 1, 2 and 3 are the coefficients to be estimated.
In our preliminary hypothesis, we considered the garbage amount would
decrease with manufacturing sectors share in GDP decreasing; then the service

sectors share would increase as a result. Thats why we choose service sectors share
as our variable besides GDP.
We have also tried other variables like period of the environmental policy and
schooling years; however, the results showed there is no significant effect on the
garbage amount.

Empirical findings

First of all, we used Excel to work on our equation. The following table is the
regression result. We also have t-value and p-value to examine the correction of our
hypothesis.
Taiwan:
Taiwan(1989~2007)

Coefficient

t-value

p- value

Intercept

874.59805591

2.39067

0.030374

GDP Per Capita

0.01023429972

4.758996

0.000253

GDP Per Capita Square

-1.22392E-08

-5.24948

9.8E-05

Service output/GDP

-3826.1998765

-3.16815

0.006366

Equation:
E 874.59805591 0.01023429972Y 1.22392 10 8 Y 2 3826.1998765V

E
0.01023429972 1.22392 10 8 2Y
Y

0.01023429972
426416.6
1.22392 10 8 2

We set the first derivative equal to zero and found our turning point at about

426,416.6 NT dollars. The amount can be found in Taiwans GDP per capita around
1998. The p-value of GDP per capita, GDP per capita square and services sector
share of GDP are significant. In addition, the graph forms an inverted U-shape,
indicating that we have found the Environmental Kuznets Curve.

(Kg)

(GDP per capita)

Japan:
Japan(1979~2005)

Coefficient

t-value

p- value

Intercept

109.5164692

3.025362

0.006021

GDP Per Capita

3.36341E-05

1.281816

0.212679

GDP Per Capita Square

-2.23124E-12

-0.58514

0.564153

Service output/GDP

-89.59729182

-1.76822

0.090288

Equation:
E 109.5164692 3.36341 10 5 Y 2.23124 10 12 Y 2 89.59729182V

E
3.36341 10 5 2.23124 10 12 2Y
Y

3.36341 10 5
7537087
2.23124 10 12 2

We find the turning point of Japan is around 7,537,087 Yen. However, Japans
GDP per capita nowadays does not attain to this level, so the turning point we got is
meaningless. The following is Japans graph which shows a flat line, indicating that
EKC does not exist in Japan in our data period.
(Kg)

Korea:

(GDP per capita)

Korea(1985~1994)

Coefficient

t-value

p- value

Intercept

-1372.10583

-2.735002

0.0291275

GDP Per Capita

0.00053085

4.4740462

0.0028869

GDP Per Capita Square

-3.2275E-11

-4.74828

0.0020877

Formula:
E 1372.10583 0.00053085Y 3.2275 10 11 Y 2

E
0.00053085 3.2275 10 11 Y
Y

0.00053085
8296875
3.2275 10 11 2
Setting the first derivative equal to zero, we find our turning point is about
Y

8,296,875 Won. The amount can be found in Koreas GDP per capita around
1988~1989. The p-value of GDP per capita, GDP per capita square and services
sector share of GDP are significant. EKC does exist in Korea because the following
graph shows that Korea forms an inverse U shape.

(Kg)

Discussion

(GDP per capita)

Comparison between the three countries

Shape
Taiwan Inversed U
Japan

flat

Korea

Inversed U

Turning point

US dollars

Turning year

426,416.6 NT dollars

12730.2 US dollars

1998

8,296,875Won

5917.4 US dollars

1988

This is a summary table of empirical findings. We found a turning point in

Taiwan and Korea, because the coefficient of Y is positive while the coefficient of Y

is negative. The curve in Taiwan and Korea are an inverse U-shaped, which matches
the past literature. In order to compare the turning point between Taiwan and Korea,
we changed NT dollars and Won to US dollars by the exchange rate of their own
turning year respectively. The EKC of Taiwan turns in 1998, and Koreas turning year
is 1988. However, the data of Korea we used is only10 years (1985~1994). The
following graph is the EKC of Korea from1985 to 2007. After 1,250,000 Won,
Koreas garbage clearance becomes stable like Japan. If we use the whole data period
(1985~2007), the variables would show insignificant.
(Kg)

(Kg)

(GDP per capita)

According to the empirical findings, EKC does not exist in Japan from the period
we used, but we think that Japan has passed the turning point before 1979. Japans

GDP per capita in 1979 is higher than Taiwans GDP nowadays. Even Taiwan has
passed the turning point, so we guess Japan also has passed before 1979. Furthermore,
from the EKC graph of Japan, it shows a flat line, which means that Japans garbage
clearance now is constant. The constant garbage clearance can be indicated that Japan
is a developed country, so Japanese have paid more attentions to their environment for
a long time. Based on the reason, we boldly hypothesize that the inverse U shape
incurred before 1979. The EKC graph will be quite similar to Koreas graph.

Three countries daily garbage clearance per capita

(Kg)

(Year)

This is a graph showing the three countries daily garbage clearance per capita.

First of all, the red one which is Japans daily garbage clearance per capita is stable
for a long time. Taiwans daily garbage clearance per capita is the yellow one. It
increases in the prior period, and begins to decrease around 1997. The green one is
Koreas daily garbage clearance per capita. In 1990, the green line decreased rapidly
and became stable in recent years.
From the above-mentioned graph, we get our own new hypothesis: The lines of
the garbage clearance will be flat when the economies of the countries develop to
some extent.

(Kg)

(Year)

This is a graph we simulate the possible situation. All of these three lines will be
flat in the future. Japan is a good example to support our hypothesis because Japan is

now a developed country, which means that its economy has reached to some extent
and the amount of garbage clearance per capita are around 0.4 kilogram for a long
while. The garbage of Korea and Taiwan may also be more stable when their incomes
attain to some level.

How service sectors share affects garbage generation

In Taiwan the service sectors share highly influences the economy. Our equation
takes the service sectors share in GDP as one of the variables. We find that the
coefficient of service sectors share in Taiwan is negative, which means that the
service sectors share and the garbage generation have a negative relationship.
Possible explanations of this situation are as follows: first of all, the composition of
sectors changes with the growth of the economy. When industrial development
increases, the amount of garbage will also increase. In addition, because the industrial
composition forms a pie chart, the industrial sector and the service sector have a
negative relationship; that is, if one increases, the other will decrease. As a result, we
conclude that the service sectors share has a negative relationship with the garbage
generation, which is the reason why the coefficient of it is negative.
Secondly, we define E as capita per day clearance per garbage. The capita per
day clearance per garbage first increases, after a certain point the relation turns
negative and the number decreases. To conclude, we find our formula and our model

are quite reasonable for they match the real situation.

In the years of our data from 1985 to 2007, Koreas GDP per capita increases,
while the service sector stays consistent at around 50 percent. The increase of GDP
and stable percentage of the service sector results in an insignificant relationship
between the two. So result of Koreas service sector and garbage generation relation is
insignificant.
In Japan the garbage generation forms a flat line, showing there has been little
change in garbage amount in the past years. The stabled number is insignificant to the
growth of GDP and the changes in service sectors share.

How policy affects garbage generation

The policy as a variable is not significant in our research. The reason is that the
main effect on garbage amount is peoples environmental consciousness rather than
the policy. We found before the policy was carried out, the garbage amount had
already fallen. So we conclude that what really causes the garbage amount to decrease
is peoples environmental consciousness instead of the policy.
The above phenomena occurs both in Taiwan and Korea, and the policy is either
not significant in Japan because its garbage amount has showed a stable situation.

(Kg)

(Year)
Apparently, the garbage amount became decreasing before 1994 in which the
policy was carried out in Korea. That is the reason we conclude that policy is not a
significant variable in our research.

The comparison between CO2 and garbage

This part of discussion focuses on the comparison between CO2 and garbage. In
past literatures, we see it is difficult to decrease CO2 amount because of its externality.
We also find that garbage amount is comparatively easier to control by a single
country. As a result, the problem of CO2 can only be solved by an area rather than a
single country. On the contrary, the garbage amount can be controlled by a
government and each person.
The above point of view also points out our motivation, which is why we chose
garbage as our indicator though many EKC researchers mainly discuss the
relationship between CO2 and the environment. It is comparatively easier to control
the garbage amount and it can be done by a single person; furthermore, CO2 tends to

flow from one country to another while the garbage does not. To conclude, the
garbage amount could be controlled if the government is devoted to it.

Conclusion

The relationship of environment and economic growth, represented by garbage

and GDP per capita, shows an inverse U shape in both Taiwan and Korea, while it is a
flat line in Japan. This result shows that when using garbage generation and GDP per
capita as variables, Taiwan and Korea are in accordance with the EKC model. Japans
might have had an EKC before 1979, which is outside of the time span of our data.
We predict that Japan has already passed the EKC and now its garbage generation is
consistently at a low level.
The existence of EKC is a reminder of how our actions affect the environment.
EKC shows how our actions make a difference. To lessen environment burden,
reduction of garbage is a way each of us can participate in. A little care and effort can
make a big difference. Love this beautiful planet, take action. Stop trashing our earth!

Data Sources

Taiwan Garbage ---Yearbook of Environmental Protection Statistics, R.O.C. 2008

Taiwan GDP ---Directorate-General of Budget, Accounting and Statistics, Executive
Yuan, R.O.C. http://www.dgbas.gov.tw/mp.asp?mp=1
Taiwan Service--- Directorate-General of Budget, Accounting and Statistics,

Executive Yuan, R.O.C. Statistical Abstract of National Income

Japan Garbage ---Ministry of the Environment, Government of Japan
http://www.env.go.jp/press/search_result.php?yy=&mm=&yy2=&mm2=&cat=2&word=

Japan GDP ---Cabinet Office, Government of Japan

Japan Service--- Cabinet Office, Government of Japan
Korea Garbage ---Ministry of Environment Republic of Korea (2008 Environmental
Statistic Yearbook) http://eng.me.go.kr/docs/index.html
Korea GDP ---International Monetary Fund

References

Ruei-He Jheng(2008) "The application of Environmental Kuznets Curve in Taiwan,

Japan and Korea- Variation Analysis in CO2 Emission , Copyright information
available at source archive--National Central University
Bruyn, S. M., J. C. J. M. van den Bergh, and J. B. Opschoor (1998),"Economic
Growth and Emissions: Reconsidering the Empirical Basis of Environmental Kuznets
Curves," Ecological Economics Volume 25, Issue 2, May 1998, Pages 161-175
Barua, Anamika; Hubacek, Klaus(2008) " Water Pollution and Economic Growth: An
Environmental Kuznets Curve Analysis at the Watershed and State Level ", Article
from: International Journal of Ecological Economics & Statistics Article date:
Jan.1,2008

Soumyananda Dinda(2004) Environmental Kuznets Curve Hypothesis: A Survey,

Ecological Economics 49 (2004) Pages 431 455