Increased fears that continued economic growth will irreparably damage the environment rest on the assumptions that increased output will inevitably deplete the earth's stock of natural resources and that emissions and waste will thereby exceed the biosphere's `carrying capacity'. Structural change and increased use of cleaner, resource-conserving technologies may allow a continued rise in living standards, however, without threatening non-material aspects of well-being. In Discussion Paper No. 848, Research Fellow Gene Grossman notes that the relationship between environmental damage and economic growth depends on the salience of such damage, the cost of avoiding it, and the extent to which the harm it inflicts coincides geographically and temporally with the political jurisdictions of bodies empowered to establish property rights and enforce regulations.

Grossman uses a variety of panel data sets to estimate the relationship between per capita income and pollution emissions for a wide range of both air and water pollutants: suspended particulate matter, lead, sulphur dioxide, carbon monoxide, nitrous oxides, carbon dioxide, pathogenic contamination of water, heavy metals, toxic chemicals and water oxygen levels. While some pollutants decline monotonically with increasing income, others exhibit a `bell-shaped' pattern, and for some there is no evidence that emissions decline with income. Those with `local' effects tend to decline quickly with income, while those with `global' effects do not.

Grossman concludes that the relationship between income growth and pollution abatement is by no means automatic, even in cases where growth seems to be associated with improved environmental conditions. It generally appears to require policy action by governments in response to their citizens' increased demands for greater protection for the natural habitat. Further, developing countries need not follow the same pattern of development as the industrialized countries, since learning processes and technology transfer should allow them to turn their attention to preservation of the environment at an earlier stage of development.

Pollution and Growth: What Do We Know?
Gene M Grossman

Discussion Paper No. 848, October 1993 (IT)