Economic growth, industrialization, and the environment

In this paper, I argue the compositional shift from agricultural to industrial production – industrialization – is a central determinant of changes in environmental quality as economies develop. I develop a simple two-sector model of neoclassical growth and the environment in a small open economy to examine how industrialization affects the environment. The model is estimated using sulfur emissions data for 157 countries over the period 1970–2000. The results show the process of industrialization is a significant determinant of observed changes in emissions: a 1% increase in industry's share of total output is associated with an 11.8% increase in the level of emissions per capita.

► Develop a theory of the EKC that explains other stylized facts. ► The theory shows an EKC can arise through industrialization as economies grow. ► It also shows cross-country pollution levels will converge during industrialization. ► Empirical results show industrialization is a significant determinant of convergence. ► Find a 1% increase in industries share of GDP increases emissions per capita by 12%.