Economic growth, trade and energy: implications for the environmental Kuznets curve

The environmental Kuznets curve (EKC) hypothesis asserts that pollution follows an inverted-U path with respect to economic growth. The EKC has been explained in terms of structural changes in the composition of economic output and increased environmental regulation at higher income levels. While some authors have incorporated the impact of trade policy orientation on the EKC, the impact of the actual movement between countries of goods that embody pollution has not been considered. This paper attempts to econometrically quantify the effect using pooled cross-country and time-series data. The EKC hypothesis is examined with respect to commercial energy consumption, the source of many serious environmental problems. It was found that while both industrializing and industrialized countries have added to their energy requirements by exporting manufactured goods, the growth has been substantially higher in the former. At the same time, industrialized countries have been able to reduce their energy requirements by importing manufactured goods. Exports of manufactured goods by industrialized countries has thus been an important factor in generating the upward sloping portion of the EKC and imports by industrialized countries have contributed to the downward slope. (C) 1998 Elsevier Science B.V. All rights reserved.