The Environmental Kuznets Curve on the Household Level: Evidence From Paranaque

City

1.1. Introduction

The rise of the concept of “sustainable development” shows a key shift in policy makers view
economic development beginning the late part of the 20th century, when the Brundtland Report
(1987) first defined sustainable development as “the human ability to ensure that the current
development meets the needs of the present without compromising the ability of future
generations to meet their own needs”, suggesting a prioritization of economic development that
does not come at the expense of environmental degradation. This initiative quickly gained
traction as the United Nations Conference of Environment and Development took place in 1992,
where the first international attempt to adapt more sustainable forms of development took place.
This further found its way into later international initiatives such as the Millenium Development
Goals (MDG’s) and the Sustainable Development Goals (SDG’s).

Growing interest in the study of the interaction between the economy and environment brought
rise to the Environmental Kuznets Curve (EKC), which today remains a dominant theory
explaining the interaction between economic growth and environmental degradation. Having
been developed by environmental economists in the 1990s, the theory is originally derived from
the concept of the Kuznets Curve; an economic theory developed by Nobel Prize Economist
Simon Kuznets in the 1950’s which hypothesized an inverse “U” relationship between economic
growth and income inequality. This proposed inverse “U” shaped relationship has been taken by
environmental economists; suggesting that while environmental degradation coincides with
early stages of economic growth, this relationship is reversed when an economy reaches a
certain level of development coined the “turning point”. Upon reaching this “turning point”, the
relationship is reversed and further increases in income lead to less pollution due to
technological advancements and an increased funding for environmental preservation efforts.

One particularly relevant environmental aspect to which the EKC can be tested is the area of
solid waste generation, which is becoming increasingly relevant due to rapid urbanization.
Urban areas are currently home to more than half of the world’s population; a figure expected by
the United Nations to increase to 60 percent by 2030 and again increase to 68 percent by 2050.
Similarly, the World Bank’s report “What a Waste 2.0 : A Global Snapshot of Solid Waste
Management to 2050” states that global waste in the same timeframe will increase from the
current level of 2.01 billion tons to 3.4 billion tons in 2050 if no urgent action is taken; a 70
percent increase on today’s levels (World Bank, 2018)

Increasing concern regarding the environmental impact of solid waste led to initiatives led to
policy initiatives such as the European Union’s Waste Framework Directive of 2008, seeking to
break the link between economic growth and the negative environmental consequences of
waste generation through a “decoupling” process. Inglezakis et. al. (2012) further defines
“decoupling” into “absolute” and “relative” decoupling; with the former occurring when an
economy experiences zero or negative growth in waste generation as it experiences growth and
the later referring to the situation wherein an economy still experiences positive growth in waste
generation but to a lesser extent than its economic growth. Decoupling, in the context of the
EKC hypothesis, can only prove the existence of an EKC given that absolute decoupling takes
place.

The issue of waste management is particularly relevant to the Philippines as a whole, Metro
Manila and Paranaque City. According to the World Bank (2012), solid waste produced by cities
in the Philippines are expected to increase by 165 percent in 2025 to 77,776 tons per day from
its current level of 29,315 tons due to the expected 47.3 percent increase in urban population.
Similarly, the country’s Department of Environmentand Natural Resources (DENR) declared
Metro Manila to be facing a “Garbage Crisis” in 2019 as the metropolis has surpassed the
58,112.31 cubic meter waste generation baseline for the year. According to the National Solid
Waste Management Commission (NSWMC), Metro Manila currently generates 9,212.92
kilograms of waste daily in 2016 (Senate of the Philippines, 2017); of which 638.85 tons are
from Paranaque City, making the city the 4th highest contributor to Metro Manila’s waste.

1.2. Background of the Study

Grossman and Krueger (1994) first applied the Kuznets Curve measure to economic growth and
environmental degradation in an NBER paper titled “Economic Growth and the Environment”,
where the relationship between per capita income and four given environmental indicators
across (concentrations of urban air pollution; measures of the state of the oxygen regime in river
basins; concentrations of fecal contaminants in river basins; and concentrations of heavy metals
in river basins) were examined. Grossman and Krueger (1994) acknowledged an inverse “U”
relationship between income per capita and the four selected environmental indicators used,
with the turning point being set at a per-capita income of $8,000 USD.

The EKC has gained popularity since first being used by Grossman and Krueger (1994), and
has been used to examine the relationship between economic growth and different aspects of
environmental degradation; one of which is that of income per capita and Municipal Solid Waste
(MSW) as conducted by Gnonlonfin et. al. (2017). However, other studies used other indicators
to quantify levels of economic development and solid waste excretion. For instance, Khajuria et.
al. (2012) utilized Gross National Savings (GNS) as a percentage of Gross Domestic Product
(GDP) as a measure for a country’s income level while Alajmi (2016) used GDP instead of per
capita income. Similarly, some studies examining the EKC hypothesis used other indicators for
the environmental impact of solid waste such as that of Gao (2011), which utilized Industrial
Solid Waste and that of Lora et. al. (2013), which measured solid waste in landfills.

Similarly, studies conducted on the interaction between economic growth and solid waste are
not limited to those aiming to test the EKC hypothesis. Mukhtar et. al. (2016) examines waste
data trends in relation to per-capita income and population growth for both London and Kuala
Lumpur while Inglezakis et. al. (2012) aimed to determine whether “decoupling” between solid
waste and economic growth has taken place in Romania, Bulgaria and Greece without
necessarily testing the validity of the EKC hypothesis for the said countries.

While studies which tested the EKC hypothesis on given economies such as that of Bai et. al
(2012), Khajuria et. al. (2012) and Lora et. al. (2013) were able to confirm the existence of a “U
”relationship between income and a given environmental indicator, others were not able to
conclude the existence of an EKC for various reasons. The study conducted by Gao (2011), for
instance, did not find an EKC in the Henan Province of China since the province’s economy is
thought to have not yet reached its “turning point”. On the other hand, while Alajmi (2016) was
able to predict an inverse “U” shaped relationship between given economic and environmental
variables, the study could not confirm the EKC hypothesis for Saudi Arabia since the predicted
“turning point” is set very high relative to the current GDP.

Only a limited number of studies regarding the applicability of the EKC hypothesis on the
household level have currently been conducted. Cox et. al. (2012), for instance, tests the
applicability of the EKC in explaining the relationship between household income and transport
emissions while Seriña and Klasen (2015) examines the relationship between household carbon
emissions and household income.

The issue of waste management is particularly relevant to Metro Manila, which the has been
declared by the country’s Department of Environmentand Natural Resources (DENR) to be
facing a “Garbage Crisis” in 2019 as the metropolis has surpassed the 58,112.31 cubic meter
waste generation baseline for the year. Metro Manila currently generates 9.2 million kilograms
of waste daily; of which 579,555 kilograms are from Paranaque City, making the city the 4th
highest contributor to Metro Manila’s waste.

Paranaque City in recent years has seen a rise in its service sector, specifically the increasing
economic contribution of casinos and the entertainment industry as a whole onto the local
economy. This can be attributed to the developments within the city taking place within the bay
area as Paranaque City takes part in the Bay City Development Project, a land
reclamation-based development initiative involving multiple cities surrounding Manila Bay.
Recent developments in the Bay Area have made it the fastest growing office in Metro Manila at
10 percent growth. According to Paranaque Mayor Edwin Olivarez, the increasing economic
role of casinos have increased Paranaque City’s annual income to 5 billion from 2 billion prior to
such developments, transforming the city from a mere gateway in and out of the country into a
destination itself.

1.3. Objective of the Study

The study aims to achieve the following:

 ● Determine if the EKC hypothesis hold true on the household level in Paranaque City
● Test the applicability of the Environmental Kuznets Curve (EKC) hypothesis for
developing service-based economies
● Test the applicability of the Environmental Kuznets Curve (EKC) hypothesis in
determining household waste production
● Provide policy recommendations to reduce household waste production

1.4. Statement of the Research Problem

Existing literature on the application of the EKC curve is limited in scale, with existing studies
primarily examining the theory’s ability to illustrate an interaction between income and given
environmental variables on the macro level. While current studies concerning economic
development and solid waste generation are able to test the applicability of the EKC hypothesis
on the international, national and local levels, the applicability of the theory on the micro scale of
households has not yet been tested. Therefore, the question remains whether the theorized
inverse “U” relationship between levels of economic development and environmental
degradation holds true when observing annual household income and domestic solid waste
generation; and if so, what would be the turning point in the case of households in Paranaque
City? This is a particularly relevant question for a country such as the Philippines, where
household waste accounts for more than half of total solid waste (Senate of the Philippines,
2017).

Furthermore, existing literature on the applicability of the EKC hypothesis primarily focuses on
its application in developed, service-based and developing, manufacturing-based economies.
The applicability of the EKC in the context of a developing service-based economy such as the
Philippines is yet to be tested. The application of the EKC in an economy such as the
Philippines will also challenge the extent to which the EKC can be used to explain
economic-environmental interactions in economies that do not fit any particular developmental
phase as identified in Rostow’s Stages of Economic Growth.

1.5. Theoretical Framework

Environmental Kuznets Curve

A conceptual understanding of the Environmental Kuznets Curve (EKC) is crucial for the reader
to grasp the fundamental questions the study seeks to answer regarding the interaction
between economic growth and environmental degradation. The EKC attributes changes in
levels of environmental degradation (as measured by specific environmental indicators) to a
changes in income levels; stating that an initial positive correlation between the two variables
turns into a negative correlation an economy reaches a certain income level dubbed the “turning
point”. It can therefore be said that the selected indicator for environmental degradation is the
“dependent variable” while the variable measuring income is the “independent variable”. This is
illustrated below, where the former is placed on the “y” axis while the later is placed on the “x”
axis.

Figure 1: The Environmental Kuznets Curve (EKC) Hypothesis

Source: Pettinger et. al. (2019)

As illustrated by Mao et. al. (2013), the general model for the EKC can be seen below, ​E
represents the selected environmental indicator, ​Y represents the selected economic indicator,
where ∝ represents the intercept, β 1 , β 2 and β 3 represent unknown variables and μ
represents a random error.

E = α + β 1Y + β 2Y 2 + β 3Y 3 + μ

Rostow’s Stages of Economic Growth

Another key theory to understand in interpreting this study would be Rostow’s Stages of
Economic Growth. While not universally accepted by the academe, having received criticism
such as that of Itagaki (1963), the Environmental Kuznets Curve’s’ heavy reliance on the
assumption made by this growth theory. Created by Rostow (1958), Rostow’s Stages of
Economic Growth suggests that a country’s economy undergoes five universal stages; from
starting out as pre-industrial societies, economies then establish the necessary soft and hard
infrastructure for growth. This is then followed by the mechanization of agriculture and the rise
of the manufacturing sector, followed by further development into more technologically
advanced, less labor-intensive industries and eventually a transition into a service-based
economy. Each of the five stages are shown below.

Figure 2: Rostow’s Stages of Economic Growth

Figure 3 shows the interplay among relevant variables within the study. Average household
income is treated as the economic indicator and dependent variable while household solid
waste production serves as the environmental indicator and the main independent variable. The
latter is further classified into three subcategories; namely: the household’s consumption
patterns, it’s recycling rate and waste segregation behavior. Background variables in relation to
average household income are also considered.
 Figure 3: Theoretical Framework

1.6. Research Simulacrum

Data on relevant indicators for quantifying household solid waste in relation to their income will
be collected to test if absolute decoupling holds true on the micro level in the context of
Paranaque City. A demographic profile of the survey respondents will also take place, with both
the test results and its corresponding demographic profile both serving as a basis for policy
recommendations put forth in this study. Results of this study also offer practical implications on
the applicability of the EKC hypothesis in explaining economic-environmental interaction on the
micro level.

Figure 4: Research Simulacrum

1.7. Scope and Limitations

The findings of this study will be limited to the applicability of the Environmental Kuznets Curve
in explaining the relationship between household income levels and solid waste production on
the micro level in the case of Paranaque. Therefore, the study’s findings do not necessarily
translate to the EKC’s ability to explain the interaction between the selected economic and
environmental variables on the macro-level in Paranaque City nor the Philippines as a whole.
Furthermore, this study only limits its assessment of the EKC to its value in assessing solid
waste production relative to household income levels and will not cover the theory’s applicability
when other economic and environmental indicators are used; even on the micro level.

2.1 Review of Related Literature

Existing literature on the applicability of the EKC hypothesis vary in scope and scale, the chosen
environmental and economic variables, the type of data used and their conclusions as to
whether the EKC can be observed in each scenario. The literature on the EKC can be grouped
into two: those that directly test the EKC hypothesis and those who do not necessarily test the
validity of the EKC but are centered on a related concept. Table 1 presents a brief summary of
relevant data found in each study.

Studies Directly Examining the EKC Hypothesis

Author Sample Main Dependent Type of Validity of Turning

Independent Variable Data the EKC Point
Variable/s

Alajmi (2016) Saudi Arabia GDP, Municipal Solid Time series Not valid Not specified
(1980-2012) Population Waste
growth

Bai et. al. 6 provinces in Household Domestic solid Cross Valid 17, 446
(2012) China (Nov. - net income waste disposal sectional RMB
Dec. 2010) per capita

Khajuria et. al. India Gross Municipal Solid Time series Valid 26.7 % of
(2012) (1947-2004) Domestic Waste GDP of gross
Savings domestic
savings

Lora et. al. Colombian GDP Per Per-capita solid Panel data Valid $13,682 USD
(2013) towns Capita waste from
(2008-2011) landfills

Gnonlanfin et. 19 GDP Per Municipal Solid Panel data Partially $56,000-
al. (2017) Meditterenean Capita Waste valid $133,000
Countries USD (PPP)
(1990-2010)

Gao (2011) Henan, China GDP Per Industrial Time series Cannot be N/A
(1994-2009) Capita Pollution determined
Emissions yet
 Mao et. al. Ningxia Yellow GDP Per Agricultural Time series Valid Overall:
(2013) River Capita Nonpoint 1762.49
Irrigation, Source Pollution RMB
China
(1990-2008) Livestock
waste:
8386.76
RMB

Cox et. al. Scotland Household Household Cross Not valid N/A
(2012) (2006) income transport sectional
emissions

Seriña and Philippines Household Household Panel data Not valid N/A
Klasen (2015) (2000-2006) income carbon footprint
(tons of CO2)

Studies That are Indirectly Related to EKC Hypothesis

Author Sample Type of Data Main Dependent Objective/s

Independent Variable/s
Variable/s

Inglezakis et. Romania, Panel data GDP (PPP) Municipal Determine if decoupling
al. (2013) Bulgaria, Waste exists for the said variables
Slovenia and Generation in the given countries
Greece (MWG)
(2000-2013)

Mukhtar et. al. London and Panel Data GDP (billion Annual Determine long term trends
(2016) Kuala Lumpur, USD), waste between solid waste
Malaysia and population generation generation and population
the United (tonnes), and economic growth
Kingdom waste per
(1970 to 2014) capita Evaluate waste
(kg/per management systems in
capita/per London and Kuala Lumpur
day)

2.1.1 The Significance of the EKC

The study of the applicability of the Environmental Kuznets Curve examines the question of
whether economic growth can be achieved without further damaging the environment; a central
theme to the concept of sustainable development. Determining whether the empirical evidence
depicts the said relationship between economic growth and environmental degradation helps
policy makers determine the following: (1) The validity of poverty alleviation as a strategy for
environmental preservation (2) The environmental issues which can be alleviated by further
economic development, if any (3) The practicality of waiting for an economy to reach it’s turning
point to counteract environmental degradation (4) The type of economies to which the EKC may
apply, if valid.

Testing the validity of the EKC hypothesis in the real world provides insight regarding which
environmental and economic variables the theory can be applied to. Majority of studies which
have tested the validity of the EKC hypothesis in explaining the relationship between national
income and solid waste production on a macro level such as those of Khajuria et. al. (2012),
Lora et. al. (2013) and Mao et. al. (2013) all confirmed the existence of an EKC; therefore
suggesting its validity in explaining interactions between the economy and environment on a
macro level. However, the limited number of studies seeking to test the theory’s validity in
explaining the relationship between household income and a given environmental variable have
been unable to confirm it’s existence. For instance, both Seriña and Klasen (2015) and Cox et.
al. (2012) failed to confirm the existence of an EKC between household income and CO2 in the
Philippines and Scotland respectively; while only Bai et. al. (2012) was able to observe an
inverse U relationship between household income and domestic solid waste disposal per capita
and therefore confirming a household-level EKC.

Determining the “turning” point of an economy provided that an inverse U relationship exists
between said variables can also prove useful in policy making; serving as basis for whether
increasing income to reduce environmental degradation remains a practical solution. This is
best depicted by a study conducted by Alajmi (2016), testing for the validity of the EKC
hypothesis for measuring GDP and Municipal Solid Waste (MSW) in Saudi Arabia. Despite
finding an inverse U relationship between the said variables, the EKC hypothesis was rejected
nonetheless due to the unrealistically high turning point of the bell curve relative to current
income levels. In such a scenario, an inverse U relationship cannot be utilized as a tool for
counteracting environmental degradation

Similarly, the applicability of the EKC may be limited; as shown in a study conducted Gnonlanfin
et. al. (2017). Seeking to examine the relationship between GNI Per Capita and MSW by
running panel data from 19 Meditterenean countries and 77 other countries in an OLS
regression model, the study found an inverse U relationship between the said variables to only
exist among high income countries, with turning points ranging from $56,000 - $133,000 USD
(PPP). The findings of this study show how the applicability of the EKC hypothesis may be
contextual, which based on the findings of Gnonlanfin et. al. (2017) may only hold true for high
income countries.

2.1.2 Studies Directly Examining the EKC Hypothesis

Alajmi (2016) examined the relationship between GDP, population growth and Municipal Solid
Waste (measured using municipal services) while also aiming to test the validity of
Environmental Kuznets Curve (EKC) hypothesis is the context of Saudi Arabia using time series
data from 1980-2012. The study used a VECM for the first objective while utilizing OLS
regression to test for the validity of the EKC. Results show a long-term positive relationship
between the given economic growth variables and MSW. Similarly, the study is not able to
confirm the existence of an EKC. While an inverse U relationship between GDP and MSW can
be observed, the turning point of the curve is set much higher than the current income level of
Saudi Arabia.
Bai et. al. (2012) tests the validity of the EKC hypothesis for explaining the relationship between
household net income and domestic solid waste disposal per capita in rural China using cross
sectional data from 1118 rural households from 6 selected provinces (Jilin, Hebei, Anhui,
Zhejiang, Sichuan and Yunnan). The survey was conducted from November to December of
2010 and collected geographic and socio-economic factors; estimating domestic solid waste in
rural China at around 1.07 kg per capita per day. The study utilizes multivariable OLS
regression and finds an inverse U relationship between per capita income of farmers and
domestic solid waste disposal per capita, validating the EKC hypothesis with the turning point at
17,446 RMB. However, per capita income was only at 5154 RMB, suggesting that the economy
was still on the rising section of the curve.

Khajuria et. al. (2012) investigates the empirical evidence linking Gross Domestic Savings (%
of GDP at current market prices) with MSW generated per capita (in tons) in India using time
series data from 1947-2004. Using quadratic regression, the data study was able to observe an
inverse U relationship between the said variables, validating the EKC hypothesis for India. The
turning point was identified at 26.7 percent of GDP of Gross Domestic Savings, occuring in
1997.

Lora et. al. (2013) aimed to demonstrate the validity of the EKC hypothesis for the Colombian
case in terms of GDP Per Capita and solid waste in municipal landfills using panel data from
707 towns during 2008 - 2011. The study used multivariable OLS regression to test for the
relationship between the said environmental variable with per-capita income and corresponding
demographic and geographical variables. An inverse U relationship is examined, validating the
EKC hypothesis for Colombia. A turning point of $13,682 USD is observed of the country as a
whole, while this was estimated to be at $14,359 USD for the Andean region and at $14,012
USD for the rest of the country.

Gnonlanfin et. al. (2017) applies the EKC hypothesis to the Mediterranean countries to
examine the relationship between GNI Per Capita and MSW using panel data from 19 countries
in the said region. Unlike other studies conducted on the subject, Gnonlanfin et. al. (2017)
considers a series of economic, socio-demographic, technological, policy and climate-related
variables in its model; making it very comprehensive. Using multivariable regression, the study
finds that an inverse U relationship is only seen among high income countries, with turning
points ranging from $56,000 - $133,000 USD (PPP). The findings of this study therefore
suggests the EKC hypothesis only holds true for high income countries.

Gao (2011) utilizes the EKC to conduct a quantitative analysis of the relationship between GDP
Capita and Industrial Pollution Emissions in the Henan province of China using time series data
from 1994 - 2009. The study utilizes cubic polynomial regression and finds mixed results per
sub-category of Industrial Pollution Emissions. While an inverse U shaped relationship can be
observed for Industrial Waste Water Emissions, no such relationship can be seen for Industrial
Solid Waste and Industrial Waste Gas Emissions; both of which are still in a rising stage.
Mao et. al. (2013) applies the EKC hypothesis to examine the relationship between GDP Per
Capita and Agricultural Nonpoint Source Pollution along the Ningxia Yellow River irrigation area
using time series data from 1990-2008. Using the Johnes export coefficient method to estimate
Nonpoint Source Pollution Load and a multivariable regression model to test for the EKC, the
study finds an overall inverse U shape relationship between the said economic and
environmental variables with the turning point being at 1762.49 RMB. However, the same
inverse U relationship is not yet observed for livestock waste, which is expected to increase till
per capita income reaches 8,386.76 RMB.

Cox et. al. (2012) tests the applicability of the EKC hypothesis on the household level in
examining the relationship between household annual income and household transport
emissions. Using cross-sectional survey data from six case study areas across Scotland in 2006
combined with OLS regression, the study found that CO2 emissions continued to rise with
income. The richest households (annual income = £52,000 or more) owned 135.38 percent
more vehicles than their poorest counterparts (annual income = up to £15,599), drove 105.24
percent more miles, excreted 10.84 percent more transport emissions per kilometer and 95.4
percent more CO2 emissions per year.

Seriña and Klasen (2015) applies the EKC hypothesis on the household level in terms of
annual household income and CO2 emissions. The study estimates household carbon
emissions by combining an input–output analysis with panel data on household expenditure
from 2000-2006. Utilizing multivariable OLS regression, Seriña and Klasen (2015) found a
significant nonlinear relationship between household income and carbon emissions. While this
depicts an inverse U relationship, the EKC cannot be validated since the turning point is way
above the current level of income.

2.1.3. Studies That are Indirectly Related to EKC Hypothesis

Inglezakis et. al. (2013) examines the concept of environmental “decoupling” in the context of
Romania, Bulgaria, Slovenia and Greece using panel data from 2000-2013. Decoupling is
referred to as a phenomenon wherein the detrimental effects of economic growth on the
environment is either reduced or reversed; with the former referring to “relative decoupling” and
the later to “absolute decoupling”. The study quantifies solid waste through Municipal Waste
Generation (MSW + waste from commerce, offices and public institutions) and uses GDP (PPP)
as an indicator for economic growth. Overall, decoupling is observed across the said countries.
However, only relative decoupling takes place in Greece while the rest attained absolute
decoupling with some small variation

Mukhtar et. al. (2016) conducted a study with two primary objectives. First, the study aimed to
determine long term trends between solid waste generation and both population and economic
growth; second, to compare and contrast the waste management strategies used in both
London and Kuala Lumpur to provide a reference for policy making in developed and
developing countries. Both Kuala Lumpur and London saw increases in solid waste together
with economic and population growth, suggesting that the initial transition to industrial society
generates waste. However, London saw a 25% decrease in solid waste in 2014 from its peak
levels in 2010 due to efforts in waste minimization, suggesting that such detrimental
environmental effects may be counteracted by policy intervention.

3.1 Research Methodology

3.1.1. Survey

3.1.2. Econometric Model

4.1 Discussion and Analysis

Paranaque City Demographic Profile

5.1 Conclusions and Recommendations

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