The Relationship Between Economic Growth And Environmental Pollution In China

We propose the economic relationship between growth and environment (EKC) is the external manifestation of the transition from traditional economic growth phase transition to modern economic growth. Economic development and environmental are repulsion (alternative) in the traditional economic growth stage, but economic development and environmental are compatibility (complementary) in modern growth stage in order to reduce the institute cost and encourage research and development. Using the changes of institute cost defining and protecting environment property, we explain the changes of economic growth phase, industrial structure changes, environmental regulation regime change, the rise and fall of China's township and village enterprises, and China's economic growth.The relationship between economic growth and the environment is directly related to the environmental resources property rights system. In the early stages of economic development, that is the early industrialization, resources and environment are often placed in the public domain. Free environmental resources bring about rent dissipation. The cost of establishing the environment property rights system are more than environment rent dissipation. The environmental resources use are excessive and inefficient, and economic growth and environmental performance are repulsion. This growth has not useless, at least it provides the initial capital needed for industrialization, without this process, it is difficult to embark on modern growth path alternative using of natural resources and intellectual capital. In a certain stage of economic development, the dissipation of environment rent will be higher than the cost of the establishment of environmental property rights system. Institutional arrangements reducing the environmental rent dissipation will occur, and economy will be onto the road of sustained economic development. Economic growth and environmental are compatibility, that is the Environmental Kuznets Curve. In the industrial structure, the proportion of services will gradually increase over the manufacturing sector. From the point of view of energy structure, the efficiency of using coal, oil, etc. will be increased, and other new energy sources (technical innovation) will gradually replace traditional energy sources with the price changes.In the early stage of economic development, per capita income is low, relative to other items, higher quality of the environment, its marginal utility is low, so there will environment rental value dissipate. People in order to develop the economy, a large number of emission pollution are produced. On the other hand, the cost of establishment and implementation of environmental protection institute is elatively high, and the free-rider problem is more serious, thus the supply of environmental protection system will be inadequate. But to a certain stage of economic development, the per capita income is higher, while the of clean environment is relative lack, its marginal utility will rise, people turn on for a clean environment and the demand for environmental protection system will increase. With the technological progress, accumulation of knowledge, as well as improvement in the level of human civilization, the cost of establising environmental institute will reduce. Extremely strong some groups and individuals preference for clean environment will overcome the free-rider problem partly.The supply of environmental institute will increase, and the environmental quality will gradually improve, pollution emissions will gradually reduce with the combined effect of these factors. So we explain the existence of environmental Kuznets curve using a simple price theory.In addition, a new hypothesis on long-term and short-term environmental Kuznets curve is proposed. In the long term, in order to reduce the dissipation environmental rent, more efficient system of exclusive property rights will be established, that there must be long-term environmental Kuznets curve; in the short term, path dependence caused by the existence of shared values changes more slowly, often at a certain stage, the institute cost of the environment system of property rights system is higher than the dissipation of environment rent, there may be other constraints make the quality of the environment deterioration in the short-term, the so-called short-term environmental Kuznets curve. Its manifestations, such as N-type, M type, etc., but its envelope must be inverted U-type long-term environmental Kuznets curve.From the point of view of China's economic transition process, in the era of planned economy directing the allocation of resources, property rights (pollution rights) of resources, environment actually belongs to the state-owned enterprises. Because there is no market for high-value transactions, the costs of enforcement of environmental property rights are not high, environmental pollution is not too serious; But in the reform and opening up, ownship enterprises, private enterprises are actively involved in the ranks of carving up natural resources and environment rental value, resulting in a large number of rent dissipation of the environment, that environment is deteriorating rapidly, while economic growts rapidly; But the dissipation of rent is unfavorable to the parties. When the rent dissipation is high (more polluting), the profits of state-owned economy was seriously affected, the state has adopted a stringent environmental laws and regulations to define Environment, property rights, resulting in improved quality of the environment, Kuznets curve produces a turning point. In the 90's, a large number of agricultural land to industrial land, regional value-added tax sharing caused the fierce competition, define the original proprietary property of the state-owned resources, according to Coase Theorem, market price criteria can be used to reduce rental value dissipation, showing the rapid growth of wealth, but due to high cost of environmental protection of property rights, there is still environment rent dissipation partly, the increase of pollution. The establishment of State Environmental Protection Administration is a powerful execution agency executing environment property rights. When people's hard is not to be directed orientations on free resources to rent-seeking but to create new knowledge, it is the meaning of the modern growing. Of course, using environmental laws and regulations to define property rights may not be clear. The limitations for a product, factors, process may lead to another product, or process to replace the elements under control, resulting in the N-type, M-type and other forms short-term Kuznets Curve. Restrictions on pollution technology may also encourage innovation on clean technologies. For the technology research and development with positive externalities, government intervention to some extent, provide some funds and promote technology, will make the the allocation of environment resources lead to social optimum.According to this theory, the long term trend of environmental changes in property rights system is the command and control regulation such as environmental emissions standards to the incentive regulation (exclusive rights), such as pollution charges, tradable permits changes in pollution rights, which trends both in the developed countries like the United States, Western Europe or in China are correct.Although economic growth from traditional to modern economic growth is inevitable in the long term, but in the short term, the bottleneck stage depends on the resources and the environment may be difficult to across, so there are many countries and regions have not yet embarked on path of Sustained economic growth in the world, in the Malthusian trap of poverty, war. In addition, many resources exist threshold, that is, below this value will result in irreversible decline in resources, therefore, to take necessary and appropriate policies to help the economy quickly took to modern economic growth path rely on modern technology, across the environmental Kuznets curve, onto the sustainable development road that economic growth and resources, environmental improvement.Environmental pollution changed the economic growth model in two ways, on the one hand it is the joint product of output, on the other hand it gives consumers a negative utility. We analyzed the following issues:is it compatible for environmental protection and economic growth; in the long run is it possible pollution-free accumulation of sustainable growth; The impact of environment on economic growth; if we introduce environmental factors, optimal paths of the key variables we concerned about such as:income, consumption, capital and pollution's changes, and inferences can be refuted. Is it consistent with the inference of environmental Kuznets curve for observational data.Accordingly, in order to more accurately describe the influence of environment to economic growth, we establish a simple model include environmental pollution, set the utility function of the main representative, the production function of firms. Constraints of the model include the dynamic adjustment Equation of capital and the characteristics of pollution control technology (increasing returns). We obtain dynamic general equilibrium analytical solutions, that is, the dynamic path of key variables after set parameters. The conclusion is:a turning point is influenced strongly by the level of increasing returns to scale on pollution control technology and the preference of clean environment. In addition, the externalitiesof pollution and environmental efforts is also a certain impact; if representative has strong preference for a clean environment, then tax to pollution is more effective than subsidy to environment efforts, otherwise, contrary to the conclusion. In the steady state, we make comparative static analysis, get corresponding policy recommendations. In order to as soon as possible to reach a turning point, we need subsidies pollution control technology; encourage the use of clean energy; regulation of extensive energy use; choose the industrial structure and consumption patterns for resource conservation and protection of the environment; the comprehensive utilization of resources; taxes on pollution.The paper also studies the impact of environmental policy for the traditional real business cycle models, provide a new volatility source, explain its transmission amplification mechanism. It is of a certain significance for research in the field of economic fluctuations.The paper also make a lot of empirical analysis from various angles to the relationship between economic growth and environmental pollution. Environmental Kuznets curve was verified using China's time series data, and the regression results support the nonlinear relationship between economic growth and environment; in order to solve the problem that the GDP and pollution emissions may contain stochastic trend, we conducted unit root and cointegration tests, results show that the stochastic trends and cointegration relationship exists, so the error correction model was used, the results are more effective support for the Environmental Kuznets Curve non-linear relationship. As to the problem that the time span of the data is not a big, because the process of industrialization of China that has many interventions and China's vast area lead to the mix of traditional and modern economic growth, according to our Short and Long term Kuznets theory new framework does not cause serious bias problem.Because the vast region of China and the mix of traditional stage and modern economic growth and transition cause regional differences on environmental problems. According to spatial econometrics, spatial correlation can lead to the traditional regression results of bias. Therefore, we use the eastern, central and western environmental data for the panel regression to control unobservable heterogeneity, the regression results also support the environmental Kuznets hypothesis; we use spatial econometrics technology control the spatial correlation to solve the ordinary least squares result errors, empirical results also support the the nonlinear relationship between economic growth and environment.In addition, we modified and supplemented to the problems caused by traditional regression methods in other aspects, such as used of simultaneous equations to solve the problem of endogenous explanatory variables; used non-participation and semi-parametric regression model to solve model set bias; used Bayesian regression approach to effective use model parameters prior distribution information that previous studies geted and solve problems caused by small samples. The results of empirical analysis still support non-linear relationship between economic growth and environment. Comprehensive analysis of a series of empirical results, we have reason to believe that the repulsion and compatible non-linear relationship between economic growth and environment exist.Innovation of this paper is as follows: (1) In this paper, we propsed a new theoretical framework that balancing of wealth maximization objective and society short term objective can explain the relationship between economic growth and environment, the environmental Kuznets relationship is nothing but the external manifestation of the transition from traditional to modern economic growth; proposed changes of transaction cost that pollution control technology, the preference for environmental quality caused led to changes of environmental institute, predicted the emergence of the environmental Kuznets curve; proposed the new hypothesis on long-term and short-term environment Kuznets curve that can explain the N-type, M-type and other environmental Kuznets curve; proposed and proved the theorem on environmental institute and income distribution; gived new interpretation on price theory the on relationship between economic growth and the environment; gived an indirect measurement method of externalities. (2) In this paper, we explained the rise and fall of township enterprises and the the transition of industrial structure and energy structure from the traditional to the modern economic growth in China using environmental rent dissipation theory, explained China's rapid economic growth and the short term, long-term environmental Kuznets curve; predicted the evolution trends of environmental property. (3) This paper analyzed the dynamic model that can explain EKC; added the impact of environmental policies into the traditional real business cycle models; used new econometrics methods(spatial econometrics, semi-parametric semi-parametric, Bayesian regression) and verified the existence of Environmental Kuznets relationship on solving many problems of estimation bias; refined error structure in model set.Although this study analyzed relations between economic growth and environment from various angles, explained and verified the environmental Kuznets relationship, but there are many problems to be solved, such as adding more variables into the model to study their mutual relations, further solved the problem of estimation bias, and studied the role of the informal institute (the common beliefs about the environment protection).