An old debate in environmental economics focuses on the Environmental Kuznets Curve (EKC). In a very well cited 1995 QJE paper, Grossman and Krueger run cross-national pollution regressions of the form: Air pollution indicator = c + b1*(Per-Capita GNP) + b2*(Per-Capita GNP Squared) + U . A "Kuznets Curve" arises if b1 is greater than zero and b2 is less than zero. I have estimated these statistical relationships using cross-city data in China and found evidence of such an inverted U shape in the relationship between a city's air pollution level and its per-capita income.
Arik Levinson has written the best two papers explaining the offsetting scale and technique forces at work here and in beating up on the original Grossman and Krueger empirics.
The EKC embodies pessimism and optimism about the causal effect of economic growth on the environment. Taken literally, it says that as poor nations grow richer their pollution increases but once they grow past "the turning point" that further economic growth helps to clean up the environment as new regulation is past.
Until recently, it appeared that India was a data point for this hypothesis with the optimistic piece that India had reached the "Turning point" early. India's GNP per-capita of roughly $5,300 is below what Grossman and Krueger estimated the "turning point" to be but in recent years India has been enacting air pollution regulation. Greenstone and Hanna have published a recent AER paper documenting health pollution progress in India brought about by the nation's vehicle regulations. But, in today's NY Times there is an India update. The new leadership has prioritized economic growth over environmental protection and thus must believe that the cost of industrial regulatory compliance is high. An interesting question concerns what it believes these costs are and how does it know them? Are their estimates based on the U.S experience? Why aren't the health and human capital gains brought about by cleaner air worth those extra regulatory compliance costs?
More research should be conducted on the political economy of adopting environmental regulation in LDC nations.
Switching subjects; Nashville is in the news. Steve Haruch argues that his beloved small town's quality of life is taking an ugly turn because of the rise of income inequality (a NY Times favorite theme). Here is a direct quote:
"And yet, starting about 20 years ago and picking up pace over the last 10, Nashville has moved inexorably in that direction. Money, especially from the entertainment industry and health care, has poured in. We built a 78-mile, sprawl-inducing ring highway instead of investing in mass transit; we built not one but two massive stadiums downtown; we spent a half-billion dollars on a convention center the size of an aircraft carrier.
These two tendencies — save our soul, but grow grow grow — are now colliding in a bizarre form of hyper-gentrification. Neighborhoods close to downtown once drew teachers, writers and musicians with well-built, well-priced Craftsman homes. But with the influx of wealth has come a new kind of buyer, often an investor offering cash well above asking price. A house that went for $40,000 a decade ago might now go for 15 times that amount.
Even worse, for many of these new gentrifiers, the old Craftsman homes are just too small, so developers have been buying up these small houses, then demolishing and replacing them with much larger ones. In many cases, the lots are stuffed from property line to property line with a new species of local housing: “two-on-ones,” also known as “tall-and-skinnies” — ugly conjoined properties that look like a duplex that’s been sliced in half and partly reattached at the rear.
But even the most cutthroat developers understand, somehow, that history and tradition are still important in this little river town. So the enormous new homes are often clad in the trappings of the humbler bungalows they replaced: clapboard siding, knee braces at the gables, exposed beam-ends. The results can be grotesque, as if the skin of a small house has been stretched over a much larger one."
Are we on a "Highway to Hell"? I don't think so but it continues to amaze me how many people are nostalgic for the "good old days". Were they that good?