Professional Documents
Culture Documents
Kuznets Curve
Kuznets Curve
Kuznets curve diagrams show an inverted U curve, although variables along the axes are often mixed and
matched, with inequality or the Gini coefficient on the Y axis and economic development, time or per-
capita incomes on the X axis.[5]
Explanations
One explanation of such a progression suggests that early in development, investment opportunities for
those who have money multiply, while an influx of cheap rural labor to the cities holds down wages.
Whereas in mature economies, human capital accrual (an estimate of income that has been achieved but not
yet consumed) takes the place of physical capital accrual as the main source of growth; and inequality
slows growth by lowering education levels because poorer, disadvantaged people lack finance for their
education in imperfect credit-markets.
The Kuznets curve implies that as a nation undergoes industrialization – and especially the mechanization
of agriculture – the center of the nation's economy will shift to the cities. As internal migration by farmers
looking for better-paying jobs in urban hubs causes a significant rural-urban inequality gap (the owners of
firms would be profiting, while laborers from those industries would see their incomes rise at a much
slower rate and agricultural workers would possibly see their incomes decrease), rural populations decrease
as urban populations increase. Inequality is then expected to decrease when a certain level of average
income is reached and the processes of industrialization – democratization and the rise of the welfare state –
allow for the benefits from rapid growth, and increase the per-capita income. Kuznets believed that
inequality would follow an inverted "U" shape as it rises and then falls again with the increase of income
per-capita.[6] Kuznets had two similar explanations for this historical phenomenon:
In both explanations, inequality will decrease after 50% of the shift force switches over to the higher paying
sector.[4]
Evidence
Inequality has risen in most developed countries since the 1960s, so that graphs of inequality over time no
longer display a Kuznets curve. Piketty has argued that the decline in inequality over the first half of the
20th century was a once-off effect due to the destruction of large concentrations of wealth by war and
economic depression.
Critics of the Kuznets curve theory argue that its U-shape comes not from progression in the development
of individual countries, but rather from historical differences between countries. For instance, many of the
middle income countries used in Kuznets' data set were in Latin America, a region with historically high
levels of inequality. When controlling for this variable, the U-shape of the curve tends to disappear (e.g.
Deininger and Squire, 1998). Regarding the empirical evidence, based on large panels of countries or time
series approaches, Fields (2001) considers the Kuznets hypothesis refuted.[7]
The East Asian miracle (EAM) has been used to criticize the validity of the Kuznets curve theory. The
rapid economic growth of eight East Asian countries—Japan; the Four Asian Tigers South Korea, Taiwan,
Singapore, Hong Kong; Indonesia, Thailand, and Malaysia—between 1965 and 1990, was called the East
Asian miracle. The EAM defies the Kuznets curve, which insists growth produces inequality, and that
inequality is a necessity for overall growth.[6][8] Manufacturing and export grew quickly and powerfully.
Yet, contrary to Kuznets' historical examples, the EAM saw continual increases in life expectancy and
decreasing rates of severe poverty.[9] Scholars have sought to understand how the EAM saw the benefits of
rapid economic growth distributed broadly among the population.[8] Joseph Stiglitz explains this by the
immediate re-investment of initial benefits into land reform (increasing rural productivity, income, and
savings), universal education (providing greater equality and what Stiglitz calls an "intellectual
infrastructure" for productivity[8]), and industrial policies that distributed income more equally through high
and increasing wages and limited the price increases of commodities. These factors increased the average
citizen's ability to consume and invest within the economy, further contributing to economic growth. Stiglitz
highlights that the high rates of growth provided the resources to promote equality, which acted as a
positive-feedback loop to support the high rates of growth.
Cambridge University Lecturer Gabriel Palma recently found no evidence for a 'Kuznets curve' in
inequality:
"[T]he statistical evidence for the 'upwards' side of the 'Inverted-U' between inequality and
income per capita seems to have vanished, as many low and low-middle income countries now
have a distribution of income similar to that of most middle-income countries (other than those
of Latin America and Southern Africa). That is, half of Sub-Saharan Africa and many
countries in Asian, including India, China and Vietnam, now have an income distribution
similar to that found in North Africa, the Caribbean and the second-tier NICs. And this level is
also similar to that of half of the first-tier NICs, the Mediterranean EU and the Anglophone
OECD (excluding the US). As a result, about 80% of the world population now live in
countries with a Gini around 40."[10]
Palma goes on to note that, among middle-income countries, only those in Latin America and Southern
Africa live in an inequality league of their own. Instead of a Kuznets curve, he breaks the population into
deciles and examines the relationship between their respective incomes and income inequality. Palma then
shows that there are two distributional trends taking place in inequality within a country:
"One is 'centrifugal', and takes place at the two tails of the distribution—leading to an
increased diversity across countries in the shares appropriated by the top 10 percent and
bottom forty percent. The other is 'centripetal', and takes place in the middle—leading to a
remarkable uniformity across countries in the share of income going to the half of the
population located between deciles 5 to 9."[10]
Therefore, it is the share of the richest 10% of the population that affects the share of the poorest 40% of the
population with the middle to upper-middle staying the same across all countries.
In Capital in the Twenty-First Century, Thomas Piketty denies the effectiveness of the Kuznets curve. He
points out that in some rich countries, the level of income inequality in 21st century has exceeded that in the
second decades of 20th century, proposing the explanation that when the rate of return on capital is greater
than the rate of economic growth over the long term, the result is the concentration of wealth.[11]
Deforestation may follow a Kuznets curve (cf. forest transition curve). Among countries with a per capita
GDP of at least $4,600, net deforestation has ceased.[20] Yet it has been argued that wealthier countries are
able to maintain forests along with high consumption by 'exporting' deforestation, leading to continuing
deforestation on a worldwide scale.[21]
Criticisms
However, the EKC model is debatable when applied to other pollutants, some natural resource use, and
biodiversity conservation.[22] For example, energy, land and resource use (sometimes called the "ecological
footprint") may not fall with rising income.[23] While the ratio of energy per real GDP has fallen, total
energy use is still rising in most developed countries as are total emission of many greenhouse gases.
Additionally, the status of many key "ecosystem services" provided by ecosystems, such as freshwater
provision (Perman, et al., 2003), soil fertility, and fisheries, have continued to decline in developed
countries. Proponents of the EKC argue that this varied relationship does not necessarily invalidate the
hypothesis, but instead that the applicability of the Kuznets curves to various environmental indicators may
differ when considering different ecosystems, economics, regulatory schemes, and technologies.
At least one critic argues that the US is still struggling to attain the income level necessary to prioritize
certain environmental pollutants such as carbon emissions, which have yet to follow the EKC.[24] Yandle et
al. argue that the EKC has not been found to apply to carbon because most pollutants create localized
problems like lead and sulfur, so there are a greater urgency and response to cleaning up such pollutants. As
a country develops, the marginal value of cleaning up such pollutants makes a large direct improvement to
the quality of citizens' lives. Conversely, reducing carbon dioxide emissions does not have a dramatic
impact at a local level, so the impetus to clean them up is only for the altruistic reason of improving the
global environment. This becomes a tragedy of the commons where it is most efficient for everyone to
pollute and for no one to clean up, and everyone is worse as a result (Hardin, 1968). Thus, even in a
country like the US with a high level of income, carbon emissions are not decreasing in accordance with
the EKC.[24] However, there seems to be little consensus about whether EKC is formed with regard to
CO2 emissions, as CO2 is a global pollutant that has yet to prove its validity within Kuznet's Curve.[25]
That said, Yandle et al. also concluded that "policies that stimulate growth (trade liberalization, economic
restructuring, and price reform) should be good for the environment".[24]
Other critics point out that researchers also disagree about the shape of the curve when longer-term time
scales are evaluated. For example, Millimet and Stengos regard the traditional "inverse U" shape as actually
being an "N" shape, indicating that pollution increases as a country develops, decreases once the threshold
GDP is reached, and then begins increasing as national income continues to increase. While such findings
are still being debated, it could prove to be important because it poses the concerning question of whether
pollution actually begins to decline for good when an economic threshold is reached or whether the
decrease is only in local pollutants and pollution is simply exported to poorer developing countries.
Levinson concludes that the environmental Kuznets curve is insufficient to support a pollution policy
regardless whether it is laissez-faire or interventionist, although the literature has been used this way by the
press.[26]
Arrow et al. argue pollution-income progression of agrarian communities (clean) to industrial economies
(pollution intensive) to service economies (cleaner) would appear to be false if pollution increases again at
the end due to higher levels of income and consumption of the population at large.[27] A difficulty with this
model is that it lacks predictive power because it is highly uncertain how the next phase of economic
development will be characterized.
Suri and Chapman argue that the EKC is not applicable on the global scale, as a net pollution reduction
may not actually be occurring globally. Wealthy nations have a trend of exporting the activities that create
the most pollution, like manufacturing of clothing and furniture, to poorer nations that are still in the process
of industrial development (Suri and Chapman, 1998). This could mean that as the world's poor nations
develop, they will have nowhere to export their pollution. Thus, this progression of environmental clean-up
occurring in conjunction with economic growth cannot be replicated indefinitely because there may be
nowhere to export waste and pollution-intensive processes. However, Gene Grossman and Alan B.
Krueger, the authors who initially made the correlation between economic growth, environmental clean-up,
and the Kuznets curve, conclude that there is "no evidence that environmental quality deteriorates steadily
with economic growth."[26]
Stern warns "it is very easy to do bad econometrics", and says "the history of the EKC exemplifies what
can go wrong". He finds that "little or no attention has been paid to the statistical properties of the data used
such as serial dependence or stochastic trends in time series and few tests of model adequacy have been
carried out or presented. However, one of the main purposes of doing econometrics is to test which
apparent relationships ... are valid and which are spurious correlations". He states his unequivocal finding:
"When we do take such statistics into account and use appropriate techniques we find that the EKC does
not exist (Perman and Stern 2003). Instead, we get a more realistic view of the effect of economic growth
and technological changes on environmental quality. It seems that most indicators of environmental
degradation are monotonically rising in income though the 'income elasticity' is less than one and is not a
simple function of income alone. Time-related effects reduce environmental impacts in countries at all levels
of income. However, in rapidly growing middle income countries the scale effect, which increases pollution
and other degradation, overwhelms the time effect. For example, Armenia, after gaining its independence
from the Soviet Union, has become the country with the least income elasticity in Eastern Europe and
Centra Asia.[28] In wealthy countries, growth is slower, and pollution reduction efforts can overcome the
scale effect. This is the origin of the apparent EKC effect".[29]
Steel production has been shown to follow a Kuznets-type curve in the national development cycles of a
range of economies, including the United States, Japan, Republic of Korea and China. This discovery, and
the first usage of the term "Kuznets Curve for Steel" and "Metal intensity Kuznets Curve" were by Huw
McKay in a 2008 working paper (McKay 2008). This was subsequently developed in McKay (2012). A
body of work on "Material Kuznets Curves" focused on non-ferrous metals has also emerged as academic
and policy interest in resource intensity increased during the first two decades of the 21st century.
References
1. Based on Table TI.1 of the supplement (http://piketty.pse.ens.fr/en/capital21c2) Archived (htt
ps://web.archive.org/web/20140508185857/http://piketty.pse.ens.fr/en/capital21c2) 8 May
2014 at the Wayback Machine to Thomas Piketty's Capital in the Twenty-First Century.
2. Piketty, Thomas (2013). Capital in the Twenty-First Century. Belknap. p. 24.
3. Kuznets profile (http://homepage.newschool.edu/het//profiles/kuznets.htm)Archived (https://w
eb.archive.org/web/20090918075800/http://homepage.newschool.edu/het//profiles/kuznets.
htm) 18 September 2009 at the Wayback Machine at New School for Social Research: "...his
discovery of the inverted U-shaped relation between income inequality and economic
growth..."
4. Kuznets, Simon. 1955. Economic Growth and Income Inequality. American Economic
Review 45 (March): 1–28.
5. Vuong, Q.-H.; Ho, M.-T.; Nguyen, T. H.-K.; Nguyen, M.-H. (2019). "The trilemma of
sustainable industrial growth: evidence from a piloting OECD's Green city" (https://doi.org/1
0.1057%2Fs41599-019-0369-8). Palgrave Communications. 5: 156. doi:10.1057/s41599-
019-0369-8 (https://doi.org/10.1057%2Fs41599-019-0369-8).
6. Galbraith, James (2007). "Global inequality and global macroeconomics". Journal of Policy
Modeling. 29 (4): 587–607. CiteSeerX 10.1.1.454.8135 (https://citeseerx.ist.psu.edu/viewdo
c/summary?doi=10.1.1.454.8135). doi:10.1016/j.jpolmod.2007.05.008 (https://doi.org/10.101
6%2Fj.jpolmod.2007.05.008).
7. Fields G (2001). Distribution and Development, A New Look at the Developing World.
Russel Sage Foundation, New York, and The MIT Press, Cambridge, Massachusetts, and
London.
8. Stiglitz, Joseph E. (August 1996). "Some Lessons From The East Asian Miracle". The World
Bank Research Observer. 11 (2): 151–177. CiteSeerX 10.1.1.1017.9460 (https://citeseerx.is
t.psu.edu/viewdoc/summary?doi=10.1.1.1017.9460). doi:10.1093/wbro/11.2.151 (https://doi.
org/10.1093%2Fwbro%2F11.2.151).
9. (course lectures).
10. Palma, J. G. (26 January 2011). "Homogeneous middles vs. heterogeneous tails, and the
end of the 'Inverted-U': the share of the rich is what it's all about" (https://ideas.repec.org/p/ca
m/camdae/1111.html). Ideas.
11. Thomas Piketty (2014). Capital in the Twenty-First Century. Belknap Press. ISBN 978-
0674430006.
12. Fogel, Robert W. (December 1987). Some Notes on the Scientific Methods of Simon
Kuznets. National Bureau of Economic Research. pp. 26–7. doi:10.3386/w2461 (https://doi.o
rg/10.3386%2Fw2461). S2CID 142683345 (https://api.semanticscholar.org/CorpusID:14268
3345).
13. Dobson, Stephen; Carlyn Ramlogan (April 2009). "Is There An Openness Kuznets Curve?".
Kyklos. 62 (2): 226–238. doi:10.1111/j.1467-6435.2009.00433.x (https://doi.org/10.1111%2F
j.1467-6435.2009.00433.x). S2CID 154528726 (https://api.semanticscholar.org/CorpusID:15
4528726).
14. Yasin, Iftikhar; Ahmad, Nawaz; Chaudhary, Muhammad Aslam (22 July 2020). "The impact
of financial development, political institutions, and urbanization on environmental
degradation: evidence from 59 less-developed economies". Environment, Development and
Sustainability. 23 (5): 6698–6721. doi:10.1007/s10668-020-00885-w (https://doi.org/10.100
7%2Fs10668-020-00885-w). ISSN 1573-2975 (https://www.worldcat.org/issn/1573-2975).
S2CID 220721520 (https://api.semanticscholar.org/CorpusID:220721520).
15. Shafik, Nemat. 1994. Economic development and environmental quality: an econometric
analysis. Oxford Economic Papers 46 (October): 757–773
16. Grossman, G. M.; Krueger, A. B. (1991). "Environmental impacts of a North American Free
Trade Agreement" (https://doi.org/10.3386%2Fw3914). National Bureau of Economic
Research Working Paper 3914, NBER. doi:10.3386/w3914 (https://doi.org/10.3386%2Fw39
14).
17. Yasin, Iftikhar; Ahmad, Nawaz; Chaudhary, M. Aslam (22 July 2019). "Catechizing the
Environmental-Impression of Urbanization, Financial Development, and Political Institutions:
A Circumstance of Ecological Footprints in 110 Developed and Less-Developed Countries".
Social Indicators Research. 147 (2): 621–649. doi:10.1007/s11205-019-02163-3 (https://doi.
org/10.1007%2Fs11205-019-02163-3). ISSN 0303-8300 (https://www.worldcat.org/issn/030
3-8300). S2CID 199855869 (https://api.semanticscholar.org/CorpusID:199855869).
18. John Tierney (20 April 2009). "The Richer-Is-Greener Curve" (http://tierneylab.blogs.nytimes.
com/2009/04/20/the-richer-is-greener-curve/). The New York Times.
19. "Don't Be Very Worried" (https://web.archive.org/web/20060615222424/http://www.opinionjo
urnal.com/columnists/pdupont/?id=110008416). The Wall St. Journal. 23 May 2006.
Archived from the original on 15 June 2006.
20. Returning forests analyzed with the forest identity (http://www.pnas.org/content/103/46/1757
4.short), 2006, by Pekka E. Kauppi (Department of Biological and Environmental Sciences,
University of Helsinki), Jesse H. Ausubel (Program for the Human Environment, The
Rockefeller University), Jingyun Fang (Department of Ecology, Peking University),
Alexander S. Mather (Department of Geography and Environment, University of Aberdeen),
Roger A. Sedjo (Resources for the Future), and Paul E. Waggoner (Connecticut Agricultural
Experiment Station)
21. "Developing countries often outsource deforestation, study finds" (http://news.stanford.edu/n
ews/2010/november/woods-outsource-deforestation-112410.html). Stanford News. 24
November 2010. Retrieved 18 June 2015.
22. Mills JH, Waite TA (2009). "Economic prosperity, biodiversity conservation, and the
environmental Kuznets curve". Ecological Economics. 68 (7): 2087–2095.
doi:10.1016/j.ecolecon.2009.01.017 (https://doi.org/10.1016%2Fj.ecolecon.2009.01.017).
23. "Google Public Data US Energy" (https://www.google.com/publicdata/explore?ds=djha77o4
u941j_&ctype=l&strail=false&bcs=d&nselm=h&met_y=consumption&scale_y=lin&ind_y=fal
se&rdim=state&ifdim=state&tdim=true&tstart=-285267600000&tend=1261033200000).
Energy Information Administration. Retrieved 17 December 2011.
24. Yandle B, Vijayaraghavan M, Bhattarai M (2002). "The Environmental Kuznets Curve: A
Primer" (https://web.archive.org/web/20081230031711/http://www.perc.org/articles/article68
8.php). The Property and Environment Research Center. Archived from the original (http://w
ww.perc.org/articles/article688.php) on 30 December 2008. Retrieved 16 June 2008.
25. Uchiyama, Katsuhisa (2016). Environmental Kuznets Curve Hypothesis and Carbon
Dioxide Emissions - Springer. SpringerBriefs in Economics. doi:10.1007/978-4-431-55921-4
(https://doi.org/10.1007%2F978-4-431-55921-4). ISBN 978-4-431-55919-1.
26. Arik Levinson (2000). The Ups and Downs of the Environmental Kuznets Curve.
Georgetown University. CiteSeerX 10.1.1.92.2062 (https://citeseerx.ist.psu.edu/viewdoc/sum
mary?doi=10.1.1.92.2062).
27. Arrow K, Bolin B, Costanza R, Dasgupta P, Folke C, Holling CS, et al. (1995). "Economic
growth, carrying capacity, and the environment". Ecological Economics. 15 (2): 91–95.
doi:10.1016/0921-8009(95)00059-3 (https://doi.org/10.1016%2F0921-8009%2895%290005
9-3). PMID 17756719 (https://pubmed.ncbi.nlm.nih.gov/17756719).
28. Koilo, Viktoriia. 2019. "Evidence of the Environmental Kuznets Curve: Unleashing the
Opportunity of Industry 4.0 in Emerging Economies" Journal of Risk and Financial
Management 12, no. 3: 122. https://doi.org/10.3390/jrfm12030122
29. David I. Stern. "The Environmental Kuznets Curve" (https://web.archive.org/web/201107200
34449/http://www.ecoeco.org/pdf/stern.pdf) (PDF). International Society for Ecological
Economics Internet Encyclopedia of Ecological Economics. Archived from the original (htt
p://www.ecoeco.org/pdf/stern.pdf) (PDF) on 20 July 2011. Retrieved 17 March 2019.
Bibliography
Brenner, Y.S., Hartmut Kaelble, and Mark Thomas (1991): Income Distribution in Historical
Perspective. Cambridge University Press.
Deininger K, Squire L (1998). "New Ways of Looking at Old Issues: Inequality and Growth".
Journal of Development Economics. 57 (2): 259–287. doi:10.1016/s0304-3878(98)00099-6
(https://doi.org/10.1016%2Fs0304-3878%2898%2900099-6).
Fields G (2001). Distribution and Development, A New Look at the Developing World.
Russel Sage Foundation, New York, and The MIT Press, Cambridge, Massachusetts, and
London.
Palma, JG (2011). "Homogeneous middles vs. heterogeneous tails, and the end of the
'Inverted-U': it's all about the share of the rich". Development and Change. 42: 87–153.
doi:10.1111/j.1467-7660.2011.01694.x (https://doi.org/10.1111%2Fj.1467-7660.2011.01694.
x).
McKay, Huw (2008) ‘Metal intensity in comparative historical perspective: China, North Asia,
the United States and the Kuznets curve’, Global Dynamic Systems Centre working papers,
no. 6, September.
McKay, Huw (2012) ‘Metal intensity in comparative historical perspective: China, North Asia,
the United States ’, chapter 2 in Ligang Song and Haimin Lu (eds) The Chinese Steel
Industry’s Transformation: Structural Change, Performance and Demand on Resources,
Edward Elgar: Cheltenham UK.
Van Zanden, J. L. (1995). "Tracing the Beginning of the Kuznets Curve: Western Europe
during the Early Modern Period". The Economic History Review. 48 (4): 643–664.
doi:10.2307/2598128 (https://doi.org/10.2307%2F2598128). JSTOR 2598128 (https://www.j
stor.org/stable/2598128).
Text is available under the Creative Commons Attribution-ShareAlike License 3.0; additional terms may apply. By
using this site, you agree to the Terms of Use and Privacy Policy. Wikipedia® is a registered trademark of the
Wikimedia Foundation, Inc., a non-profit organization.