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 In the early stages of economic
growth, degradation and pollution increase,
but beyond some level of income per capita
the trend reverses, so that at high-income
levels economic growth leads to
environmental improvement.
[he EKC takes after the name of Simon
Kuznets who had famously hypothesized
an inverted µU¶ income-inequality
relationship (Kuznets, 1955).
Later economists found this hypothesis
analogous to the income-pollution
relationship and popularized the phrase
Õ
  
 

.
[he EKC hypothesis contends that
pollution increases initially as a country
develops its industry and thereafter
declines after reaching a certain level of
economic progress. It suggests that
environmental damage is unavoidable in
the initial stage of economic development
and therefore, has to be tolerated until the
inversion effect kicks in.
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þ. Pollution increases at the early phase of
a country¶s industrialization due to the
setting up of rudimentary, inefficient and
polluting industries. When
industrialization is sufficiently advanced,
service industries will gain prominence.
[his will reduce pollution further.
Ä. When a country begins industrialization,
the scale effect will take place and pollution
increases. Further along the trajectory, firms
switching to less-polluting industries results
in the composition effect, which levels the
rate of pollution . Finally, the technique
effect comes into play when mature
companies invest in pollution abatement
equipment and technology, which reduces
pollution.
Scale effect
Composition effect
[echnique effect
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It has been argued that this trend
occurs in the level of many of the
environmental pollutants, such as
sulfur dioxide, nitrogen oxide, lead
DD[, chlorofluorocarbons, sewage
and other chemicals previously
released directly into the air or
water.
§esearchers like Panayotou (1997),
have even found a significant cubic
Income-SOþ relationship that takes the
form of an N curve, where the turning
points are $5000 and $15000. [his
means that in this example. SOþ will
increase indefinitely beyond $15000.