Environmental Kuznets Curves in the People’s Republic of China: Turning points and regional differences
Introduction Recent data show that, during the Tenth Five-Year Plan (FYP) of the People’s Republic of China (PRC), reduction in its emissions or discharges fell short of the targets for a number of pollutants. In 2005, sulfur dioxide (SO2) emissions increased by 27 percent from its 2000 level, totaling 25.5 million tons and exceeding the target by 7.5 million tons; and chemical oxygen demand (COD) emissions reached 14.13 million tons, 8 percent higher than the target. In contrast, the country’s economic development indicators surpassed the goals. Gross domestic product (GDP) registered a 9.48 percent annual average growth during the Tenth FYP period. The relationship between economic growth and environmental sustainability has been a subject of intensive discussions in recent years. The PRC’s rapid pace of growth and its performance in mitigating environmental degradation inevitably attract attention. Would the country’s environment continue to deteriorate or would it improve as its income level grows further? Given the country’s significant regional differences in industrial structure, the level of urbanization, and the stage of development, does the relationship between the PRC’s economic growth and level of pollutant emissions (or discharges) differ across regions? This chapter attempts to answer these questions by empirically estimating Environmental Kuznets Curves (EKC) models using the PRC provincial panel data. The EKC model, one of the controversial topics in environmental economics in recent years, hypothesizes that the relationship between income and environmental quality which is often measured by the level of pollution is inverted-U shaped: at relatively low levels of income, pollution increases and the environment deteriorates with rising incomes; beyond some turning point, pollution declines and the environment improves with rising incomes. This relationship was first noted in a series of empirical studies in the early 1990s (Shafik and Bandyopadhay 1992; Panayotou 1993; Grossman and Krueger 1995; Selden and Song 1994). Subsequent empirical studies, however, showed that while the relationship holds in some cases, it cannot be generalized in many other cases.