Structural Change, Economic Growth and the Environmental Kuznets Curve: A Theoretical Perspective

The question of whether economic growth will ultimately resolve environmental problems has recently been discussed in a mainly empirical literature. One of the mechanisms that can explain the finding of an inverted U-shaped relationship between income and emissions relies on the changes in the sectoral composition of economies associated with economic growth. This paper develops a multi-sector general-equilibrium model to study the dynamic relationships between technological progress, economic development, the sectoral composition of economies and emissions. In the model, structural change is the outcome of a complex interplay between factors of demand and supply, and results from both differences in technological progress on a sectoral level and from differences in income elasticities of demand for different goods. We will derive under what conditions such changes can give rise to a hump-shaped relationship between per capita income and emissions.

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