This special issue is concerned with environmental Kuznets curves (EKC) - the hypothesis that there is an ‘inverted-U’ relationship between various indicators of environmental degradation and levels of per capita income. Explanations as to why environmental degradation should first increase then decline with income have focused on a number of underlying relationships, including:

the effects of structural economic change on the use of the environment for resource inputs and to assimilate waste;

the link between the demand for environmental quality and income;

types of environmental degradation and ecological processes.

The growing evidence that increased levels of carbon dioxide in the atmosphere are related to global warming has prompted several countries to consider options for reducing and offsetting current carbon dioxide emissions. Opportunities for carbon sequestration with forestry activities have been analysed in detail primarily in industrialized nations, mainly because of data availability. This article presents a model that simulates a tropical forest stand in its role as a source of income and as a carbon store, and quantifies the potential for and cost-effectiveness of carbon sequestration through modifications of management practices. Results suggest that financing modifications of forestry practices may achieve net carbon sequestration in a relatively cost-effective way. Tropical countries with extensive forest resources may be in a position to offer cost-effective net carbon sequestration options.

This paper explores the interaction between regional integration and the environment in a formal three-country, three-good model which incorporates pollution. Our main findings are: (1) whether preferential trading improves welfare depends critically on the level of domestic pollution charge extant and the direction of trade; (2) the introduction of preferential trading may lower welfare even when the pollution policy is chosen optimally; and (3) coordination of environmental policies only makes sense when pollution is transnational.

Soil erosion and soil mining are important environmental problems in many developing countries and may represent a considerable drag on economic development. The cost of soil degradation depends, however, not only on the productivity effects it has on agricultural growth, but also on how the agricultural sectors are linked to the rest of the economy. This article describes an integrated economy–soil-productivity model for Ghana, and through several simulated scenarios we calculate the drag on the Ghanaian economy of soil mining and erosion, and illustrate the effects of different policies aiming at a reduction in these environmental problems.

We consider a two-period model of an indebted developing country endowed with a natural resource whose extraction causes negative global externalities, where the country may borrow in period one and there is asymmetric information about its willingness to service its loans. We show that when the resource is large, the interest rate on new borrowing equals the resource growth rate. A greater initial debt level then leads to reduced new borrowing and more rapid extraction. An outside 'donor' may affect the resource extraction of the country. Donor schemes that tie debt reduction to postponing or abstaining from extraction of the resource are more powerful than non-conditional schemes in reducing the extraction rate for governments that actually repay, but may in some cases lead to a greater probability of default through increased debt. While conditional schemes generally are potentially Pareto-superior to non-conditional ones, the welfare of the borrowing country is higher with non-conditional schemes.

This short piece introduces the special issue on environmental Kuznets curves (EKC) — the hypothesized 'inverted-U' relationship between levels of environmental degradation and per capita income. Although the analysis of EKC relationships has been a relatively recent phenomenon, there is widespread interest on the part of academics in this analysis, and on the part of policymakers in the resulting implications for environment and development. The following introduction outlines the contributions to EKC analysis of the papers comprising the special issue. This is done in two ways: first, the empirical results of the special issue papers are compared with previous analyses of the EKC relationships; and second, the additional insights offered by the special issue papers on EKCs are discussed.

This article develops a model of wild-resource exploitation that includes both the standard bioeconomic properties of growth and harvesting and a species-area relationship linked to habitat conversion. The model is developed for both a closed and an open economy. In the closed-economy model the characteristics of the long-run equilibrium are analysed in three versions of the model: the basic bioeconomic model, the inclusion of habitat conversion and the addition of biodiversity value. In the case of the open-economy model, we also examine the potential effects of trade interventions on the optimal exploitation of species and habitat conversion in the long run. The results confirm that the inclusion of habitat conversion as well as biodiversity value in a model of wild-resource exploitation yields significantly different outcomes than a basic bioeconomic model.

The environmental Kuznets curve (EKC) is an empirical regularity showing how some pollutants increase and then decrease with rising per capita incomes. Popular discussions and models of the EKC emphasize the role of the income elasticity of demand for environmental quality as a driving force for the inverted U-shaped relationship between income and pollutants. This paper explores the role of the income elasticity of demand for environmental quality by decomposing the reduced-form effect of income on pollution, showing that preferences consistent with a positive income elasticity of demand for environmental quality are neither necessary nor sufficient for the EKC. Increasing pollution may occur with increasing income but preferences that would imply a high income elasticity of demand for environmental quality, and decreasing pollution may occur simultaneous with preferences that put lower values on pollution reduction as incomes rise.

Countries richly endowed with natural resources have, on average, developed less rapidly than countries that are poor in natural resources. One possible explanation for this phenomenon is that the level of investment in reproducible capital has been insufficient to offset the depletion of natural capital. The empirical significance of this explanation can be investigated by analysing modified measures of net investment and net domestic product. Estimation of these measures involves calculating the economic depreciation of natural resources, a task that has been problematic in previous studies. Malaysia provides an ideal case for such empirical investigations, as it is one of the world's most resource-rich countries yet also has one of the world's fastest-growing economies, consists of three subnational regions that differ significantly in terms of economic structure, and has sufficient data for estimating conceptually correct measures of natural resource depreciation. Results of the analysis indicate that Malaysia has developed sustainably, despite substantial resource depletion. This is not the case in two of the regions, however, where trends in both net investment and net domestic product indicate that current consumption levels cannot be sustained. Nevertheless, the regional differences in sustainability might be consistent with optimal national use of the rents generated by exploitation of the country's natural resources.

This article addresses the causes of different regional performances of the forest sector in the process of Chinese rural reforms. After characterizing rural forestry reform processes in different regions, we estimate farmers' production responses to land tenure change and price liberalization, two major components of the reforms, and conduct a growth accounting. It is found that farmers' responses in different regions vary substantially, and the reform programmes can be important forces in determining either resource growth or stagnation. Our study suggests the critical importance of a stable policy environment in economic transition.

There is increasing concern that the intensification of cereal production in northern Nigeria is threatening the sustainability of the agricultural environment. This article describes the effects of trade restrictions on grain imports and of fertilizer subsidy on households' decisions, and draws implications for degradation of the agricultural environment. It develops social accounting matrices (SAMs) for two household types as the basis for capturing the structure of resource allocation, cropping choices, and input use, and then uses the SAM to simulate household responses to changes in relative grain prices and fertilizer prices. Both simulations, but particularly the fertilizer price change, favour the shift from cereals to legumes. A third simulation reflecting technical change in legumes results in the largest shifts from cereals to legumes. It is concluded that appropriate policy reforms complemented by technical change will increase diversification of the cropping system and reduce inefficient fertilizer use. The cumulative effects of these changes will improve soil nitrogen and organic matter and help break the pest and disease complex, thereby improving the agricultural environment.

This paper examines the relationship between per capita income and a wide range of environmental indicators using cross-country panel sets. The manner in which this has been done overcomes several of the weaknesses asscociated with the estimation of environmental Kuznets curves (EKCs). outlined by Stern et al. (1996). Results suggest that meaningful EKCs exist only for local air pollutants whilst indicators with a more global, or indirect, impact either increase monotonically with income or else have predicted turning points at high per capita income levels with large standard errors – unless they have been subjected to a multilateral policy initiative. Two other findings are also made: that concentration of local pollutants in urban areas peak at a lower per capita income level than total emissions per capita; and that transport-generated local air pollutants peak at a higher per capita income level than total emissions per capita. Given these findings, suggestions are made regarding the necessary future direction of environmental policy.

This article investigates the linkages between economic growth, energy consumption and carbon dioxide (CO2) emissions in India by analysing the structure of production and consumption in the Indian economy. We begin with an examination of the consumption pattern of six different income classes, three each in urban and rural India, and then estimate the direct and indirect energy and CO2 emission coefficients for supporting production in various sectors. This provides us with a basis for estimating the energy and emission content of the consumption baskets of the different income classes in India. CO2 emissions are projected to increase from 0.18 tonnes of carbon (tC) per capita in 1990 to about 0.62 tC per capita in 2020 under the reference scenario which corresponds to a GDP growth rate of 5.5% per annum. We then analyse scenarios of technology improvement in which emissions are reduced to 0.47 tC per capita in 2020. Our projection methodology takes into account the changes in aggregate consumpti on pattern due to mobility of the population across the income classes and from rural to urban areas, besides the increase in per capita consumption of all classes.

In one sense, everyone making a decision of any consequence uses something very like benefit-cost analysis. That is, they weigh up the pros and cons of the options confronting them and decide between them accordingly. Benefit-cost analysis is merely one systematic way of evaluating the economically relevant pros and cons of various options. The authors of the project appraisal manuals of the early 1970s (Mishan, 1971; Dasgupta et al., 1972; Pearce, 1972; Little and Mirrlees, 1974) were interested in establishing a set of rules that might ensure that the results of distinct social investment decisions would be efficient (or at least consistent). On the surface, the paper by Arrow et al. (1996) that is the focus of this forum merely argues for an extension of benefit-cost rules to an area where, as David Pearce points out in his commentary, policy-making tends to be dominated by hasty, ill-conceived, ad hoc responses to the pressures of the moment. The paper argues that environmental, health and safety regulations in the US could and should be informed by an analysis of their economically relevant costs and benefits.

Previous studies of the association between pollution and income have tended to analyse cross-sectional or panel data for a sample of developing and developed countries. This paper presents an analysis for a single country, Malaysia. This south-east Asian country has more, and probably better, data on environmental quality than perhaps any other developing country. I find that pollution–income relationships from the cross-country studies fail to predict accurately trends in air and water pollution in Malaysia. In particular, none of six pollution-income relationships estimated using a panel data set for Malaysian states has the hypothesized 'environmental Kuznets curve' form. Although these results are inconsistent with the predictions of the cross-country relationships, they make sense in the Malaysian context. Perhaps most important, their interpretation confirms the importance of policy decisions in determining environmental outcomes.

Environment and economy interact. Most economists and economic policy makers have tended to neglect this interaction as 'external' to mainstream market economics. The question is whether environmental externalities have reached a level where they overwhelm optimality and efficiency in resource allocation. Sustainability in growth and development has been advanced as a criterion for dealing with the social costs of environmental impacts. The article examines how this criterion can be operationalized for assessing the significance of environmental concerns in economic analysis and policy. Indicators of economic and ecological sustainability are defined and compiled for selected countries. Based on these indicators, operational paradigms of 'eco-nomics' and 'sustainable development' are advanced.