- The Environmental Kuznets Curve (EKC) shows the relationship between economic development, which is proxied in per capita income, and environmental quality. - This study aims to view the existence of the EKC by arranging the distribution of 62 countries into four sub-samples based on per capita income from 1992 to 2017. - On the other hand, however, some countries have seen remarkable progress in the provision of sanitation, especially in rural areas, improvements in air quality in some major cities, and the continued improvement of human life with increasingly sophisticated technology (Brock and Taylor, 2004). - The relationship between economic development and the environment began to gain considerable attention with the large number of empirical studies of the relationship between per capita income and pollution, which became known as the Environmental Kuznets Curve (EKC).. - growth, people will be more aware of the benefits of environmental function improvement, so that environmental damage levels will decrease. - In other words, the higher per capita income level, the more the environment will improve (Stern, 2004). - We can see this from the contribution of the countries group based on per capita income to the world environment degradation.. - Viewed in Figure 1, the concentration of CO 2 emissions per capita in the world has increased from year to year. - Unlike the predictions, high-income countries have even become the largest contributors to CO 2 emissions in the world. - The shape of the world CO 2 emission curve is consistent with the trend of CO 2 emissions in high-income countries. - Figure 2: Pollutant (CO 2 Emission) Relationship and Per capita Income by Countries Group. - By taking the time period from 1992 to 2017, the relationship between these two is relatively inconsistent with the EKC hypothesis. - If we refer to the EKC, the higher the per capita income of a country, the more revenue that is allocated for environmental improvement, so the EKC should be in the form of an inverted “U”. - If we take a look at the pattern of the EKC in each group of countries, it can be said that the EKC itself is not conclusive.. - This study aims to look at the existence of the EKC by dividing countries on the basis of per capita income. - By applying panel data, the model uses the Error Correction Mechanism (ECM) method to see the economic growth effect on CO 2 emissions in the short and long term. - Studies on the EKC are already widely practised, but the results are not conclusive. - The results show that the EKC indeed does not necessarily occur. - The Kuznets Curve in economy initially illustrates the hypothesis which states that along with an economic development, market power will initially increase the imbalance within an economy, but in the future this imbalance will continue to decline. - This hypothesis was put forward by Simon Kuznets in the 1950s. - At this time there will be a transfer transition from the labour of the sector. - A country will even reach a point where the entire workforce has been absorbed in the modern sector with high productivity, the point where average income is high, but income inequality has dropped back to a relatively low level. - If depicted in graphical form, the Kuznets Curve will be in the form of an inverted “U”.. - Later, the popular Kuznets Curve has been used to explain the relationship between multiple environmental quality indicators and per capita income over time. - Their study result shows that level of pollutant concentrations increases with as per capita income at lower level but begin decrease as GDP growth keeps going higher. - There are three mechanisms of how trade liberalisation and inclusion of foreign direct investment affect the quality of the environment.. - Firstly, the existence of the scale effect. - The net effect of this activity will depend on whether the intensified pollutant-intensive activity decreases in the country having a more stringent pollution control policy.. - This is due to the transfer of new technology that is more modern than the country owner of the investment.. - In addition, if free trade encourages increased revenue, political institutions will demand cleaner environmental management as part of their concern for the welfare of the people. - In this case there is a strong positive relationship between income levels and environmental quality because in the long run each country will strive to restore its environmental quality according to a healthy and acceptable standard of living. - However, experience of each country may be different due to: first, changes in technology, in relative prices, in the patterns of output, and in policies impact on the emergence of new sources of pollution. - The result shows if the EKC is confirmed in upper-middle- and high-income countries. - The inverted “U” pattern, which shows relationship between ecological footprint (as an indicator of environmental degradation) and per capita income, only occurs during a development stage in availability of technology that increase energy efficiency, energy saving, and renewable energy. - The perception of growth importance as a driving force for development has changed since the 1992 Rio Conference in favour of the idea that, if it is to be sustainable, development must balance the social, economic and environmental pillars (Hallegatte et al., 2012). - Environmental performance in general does not deteriorate first to then improve along with the increase in income, as stated in the Kuznets Curve. - Therefore, changes in environmental indicators (on the vertical line) due to an increase in per capita income differ (thus do not form an inverted “U” as hypothesised), depending on the type of pollutant (environmental indicator) used. - the criticisms of the EKC literature (Costantini and Martini, 2006).. - This study uses data from 62 countries in the world from 1992 to 2016. - This period was chosen because of the latest data obtained for CO 2 emission until 2016. - The sample is then categorized into four groups based on the amount of income in accordance with the division of the World Bank. - There are several reasons why the sample should be divided on revenue (Allard et al., 2018), of which middle-income countries are home to 73% of the poor. - The result of the literature review indicates the possibility of a two-way causal relationship between per capita income and the environment. - This model is applied with the intention of lifting the dynamic movement of the short-term balance pattern of income per capita. - Some advantages in using this model include: (1) The ECM combines short-term and long-term effects that can provide information about the speed of adjustment of the dependent variable in response to the shock in the independent variable. - Where CO 2 , it is the CO 2 emissions per capita of country i in period t from 1992 to 2016. - In accordance with the hypothesis of the EKC, the effect of per capita income on environmental degradation is expected to be positive. - Since the EKC curve is non-linear, the model must include the quadratic of per capita income. - If the quadratic value of per capita income is negative, then the EKC hypothesis is met because of the inverted “U” shape.. - ECM indicates the speed of per capita income adjustment due to changes in the independent variable. - Negative and significant values show the overall effect of independent variables to encourage per capita income to return to its long-term patterns. - GDP i,t is the per capita income of a country. - This variable is intended to see the existence of the Environmental Kuznets Curve.. - Other variables included in the model are population growth, pop i,t , as one of the inputs in economic growth, which can cause changes in air quality. - The greater population of a country’s population can have a direct effect on the quality of the air.. - This variable is included to explain the linkages of trade liberalisation to per capita income of a country, because international trade is often associated with the deterioration of environmental quality of a region to be able to follow the competition in the free market. - One assumption that must be met in the OLS pooled model is exogeneity, i.e. - an error that should not be correlated with one of the explanatory variables to ensure an efficient and unbiased estimate (Wooldridge, 2005). - This may be due to neglect of the relevant variables, error measurement, sample selection, selection bias, and other causes (Baltagi, 2005). - One commonly used technique for solving the problem is to include individual effects in the model by applying the Fixed Effects Estimation Method (FEM). - CO2 emissions in metric tons per capita. - GDP GDP per capita is gross domestic product divided by midyear population in current U.S. - the estimation results indicate a significant relationship between variables in the model, whereas in reality there is a more random correlation, rather than a meaningful correlation (Harris, 1995).. - The sample in this study is divided into four sub-sample groups, based on the criteria of income per capita from the World Bank (low-income countries, high middle-income countries, and high- income countries). - Granger Causality testing results between GDP per capita and CO 2 per capita across the country group show relatively the same results, as shown in Table 4.. - In general, this test indicates a one-way relationship between CO 2 per capita and the per capita income of the country. - The results of the sub-sample test show the results as shown in Table 5.. - With the exception of sub-samples of low- middle income countries, the results show that the relationship between CO 2 gas emissions and per capita income evolves into an “N”. - The EKC in the form of “N” indicates if the EKC hypothesis will not occur in the long run. - This may be a consequence of a further decrease in the possibility of improvements in the industry distribution, or of diminishing returns in technological changes. - Table 6: GDP per capita effect on CO 2 emission estimation in the short term. - Table 5: GDP per capita effect on CO 2 emission in the long term in sub-samples model. - Higher per capita income does not create a better environment by itself, as the Kuznets Curve hypothesised. - The small coefficient value of each variable of GDP also indicates that GDP per capita may not be the main variable that affects CO 2 gas emission. - In the case of the EKC hypothesis, where economic development is proxy with per capita income, it is associated with environmental degradation proxy with CO 2 per capita. - The ambiguous results above clearly show the complexity of the relationship between economic growth and environmental quality.. - The issue of whether environmental degradation increases monotonic, decreases monotonic, or rises first and then declines, as the pattern of development of the country, has important implications for policy (Panayotou, 2003). - However, if the Kuznets Curve hypothesis is proven, then the development policy is potentially environmentally friendly in the long term (with high incomes), but policies can also damage the environment significantly in the short term (when incomes are low/moderate).. - It is not per capita income that makes the environment improve, but rather the response of supply and policy to the increasing demand for environmental quality, through the enactment of environmental regulations and the development of new institutions to protect the environment. - Thirdly, the EKC’s height reflects the environmental price of economic growth: the steeper the EKC, the more environmental damage occurs with every per capita income rise. - Several different drivers come into play, including the scale and composition of the economy. - One of the policy instruments expected to maintain environmental sustainability is green public procurement. - The causes could be from natural resources which are often referred to as public goods, difficulty in calculating the benefits of developing research and development in the environmental sector, and information asymmetry (Everett et al., 2010). - Policies implemented in the form of subsidies to provide more benefits or the application of taxes to impose social costs. - Policies in the form of direct regulation can also be applied, including in regulating the technology used or imposing high costs for activities that have the potential to damage the environment. - The results of the empirical study of the four parameters are a strong and significant incentive for the community to be willing to contribute in maintaining environmental functions (Marbuah, 2019).. - The Environmental Kuznets Curve (EKC) has long been a concern, especially with the enactment of environmental conservation targets together with the economy in the target of sustainable economic development in SDGs. - EKC itself is a curve that tries to explain the relationship between environmental quality and increased income per capita. - When referring from the initial reference, the EKC curve is hypothesised as an inverted “U”. - This is to explain that at the beginning of development, environmental damage will be the price to pay in that stage, but along with the increase in per capita income, the demand for better environmental quality will increase, so as to restore environmental quality in the country.. - The research in this study shows that the EKC curve shape is no longer an inverted “U”, but rather leads to the “N” shape.. - The results of the analysis show that the shape of the EKC curve is not conclusive on all sub-samples used. - The importance of the right policy at every stage of development becomes an important point then, since per capita income cannot improve the environment on its own.. - Sustainable development is basically development that meets the needs of the present without reducing our future generation needs fulfilment. - To be able to implement the right policies, quality of institution and human resources in the country concerned must be improved in order to build sustainable development path (Costantini and Monni, 2008).. - But the limitation in this study is not including policy indicators in the model, so it is expected to be input in further research.. - In addition, the main economic sectors in the development of a country are key in the analysis of EKC. - (2004), Economic Growth and the Environment:. - (2004), The rise and fall of the environmental Kuznets curve.. - (1998), Income, inequality, and pollution: A reassessment of the environmental Kuznets curve
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