Economic Growth and Environmental Quality: Time Series and Cross Country Evidence

The authors explore the relationship between economic growth and environmental quality by analyzing patterns of environmental transformation for countries at different income levels. They look at how eight indicators of environmental quality evolve in response to economic growth and policies across a large number of countries and across time. Several conclusions are drawn; (1) income has the most consistently significant effect on all indicators of environmental quality; (2) many indicators tend to improve as countries approach middle-income levels; (3) technology seems to work in favor of improved environmental quality; (4) the econometric evidence suggests that trade, debt, and other macroeconomic policy variables seem to have little effect on the environment, although some policies can be linked to specific environmental problems; (5) the evidence shows that it is possible to "grow out of" some environmental problems, but there is nothing automatic about doing so - policies and investments to reduce degradation are necessary; and (6) action tends to be taken where there are generalized local costs and substantial private and social benefits.