**2. Literature review**

#### **2.1 Theory of environmental Kuznets curve EKC**

Legitimate growth globally in the scale of the economy could end in a corresponding growth in environmental pollution and divers' environmental implications if the technology/economy's structure remained unchanged. This effect is known as the scale impact. The scale effect underpins the conventional belief that economic expansion and environmental damage are mutually exclusive aims [39–42]. According to [43], at the highest level of growth, structural variation in information-intensive industries and services, combined with increased environmental awareness,

#### *Economic Growth and Environmental Pollution; Testing the EKC Hypothesis in Brazil DOI: http://dx.doi.org/10.5772/intechopen.104388*

regulation enforcement, advanced technology, and increased expenditures, lead to a leveling up off and continuous reduction of pollution. As a result, the approximate components of the environmental Kuznets curve are listed below: The first is about the increase in production volume. The second focuses on different industries that produce varying pollution levels, and the output mix frequently alters over time as the economy grows.

On the other hand, the composition effect is a term used to describe this [42, 44]. The six elements are as follows: Input mix variability entails the substitution of less environmentally damaging inputs with massively negative inputs. Again, technological progress comprises improvements in production efficiency (e.g., using fewer polluting inputs per unit of output) and process dynamism (e.g., reducing the quantity of CO2 emitted per unit of pollution input).

The methods effect is the result of combining the third and fourth elements. Variability in variables such as environmental regulation creativity policy/measures, which could be influenced by core economic variables highlighted, could affect these proximate elements. The composition effect, for example, could be affected by comparative advantage. Developing countries would likely focus on labor-intensive and natural-resource-intensive goods, whereas developed countries will concentrate on education and capital-intensive manufacturing activities. As a result of environmental legislation in developing countries, pollution activities may be redirected to emerging countries [45, 46]. In recent literature on Environmental Kuznets Curve (EKC), dual key theoretical arguments have been suggested to explain why, beyond a certain percapita income level, the link between economic expansion and environmental pollution becomes a "virtuous" circle. When per capita income fluctuates, the theories are concerned with variations in relative demand levels.

According to the first argument, the demand structure for commodities and services changes endogenously. According to this theory, as per capita income rises, the most negligible environmental impact sectors become more critical. Demand for services increases at the expense of demand for manufacturing underpins this position. Nonetheless, much more empirical research is needed to support the premise that underpins this argument. Some service activities may have as much as or more environmental impact, either directly or indirectly, than those in the industrial sector. In any case, this logic would only reveal a reduction in environmental pressures per unit of GDP as income rises. It could not explain a drop in absolute terms unless the assumption is made that the industries that pollute the environment the most produce worse goods. In truth, this is a long shot [47–49]. In the week/relative meaning, a difference in demand structure can appear to contribute to a "delinking" of economic progress and to come to extend environmental pressures, but not in the solid or absolute sense [50]. Furthermore, the second study is based on people's preferences and relative demand dynamism that arise as income rises. In this scenario, the differences in the intake of marketable products and services are essential, not the variation in the relative demand for various goods and services purchased in the market and, on the other hand, environmental damage.

#### *2.1.1 Empirical literature review*

From 1980 to 2010, [35] examined the relationship between economic growth and CO2 emissions in the context of the Environmental Kuznets Curve (EKC) for emerging countries. Using Driscoll-Kraay standard errors, the study discovered that the cubic functional form has an N-shape and an inverted N-shape relationship. As a

result, their data do not support the EKC hypothesis, which states that CO2 cannot automatically solve economic growth. From 1981 through 2011, [51] investigated the environmental Kuznets curve theory in Vietnam. According to the ARDL technique, the environmental Kuznets curve does not exist in the sense that the relationship between GDP and CO2 is positive in the long and short run. Borhan et al. [52] conducted research in eight ASEAN nations between 1965 and 2010. The Hausen test validated the EKC theory. CO2 has a significant negative relationship with income. This is predicated on the assumptions that as pollution levels rise, so does income and that CO2 emissions can affect output directly by lowering labor and artificial capital productivity. According to the survey, ASEAN 8 countries have lost working days due to health difficulties, and industrial equipment has deteriorated due to filthy water and air. From 1980 to 2017, [43] conducted a study on Gulf Cooperation Council countries. The validity of the EKC hypothesis in GCC countries was supported by results from the STIRPAT model and the PML-ARDL approach. From 1970 through 2020, [53] used the ARDL model to examine the EKC hypotheses. The results of the ARDL model validated the EKC hypothesis. Despite this, Algeria's high GDP per capita value has hit a tipping point, indicating that the country's economic progress is increasing emissions. [54] conducted a study from 1990 to 2015 on foreign financing, economic growth, and pollution linkages in 32 OECD nations. The results show an inverted U-shape relationship between foreign direct investment and pollution. GMM and FE-IV results revealed an inverted U-shape and N-shape association. The N-shape can be explained as follows: GDP causes significant CO2 emissions growth in the first phase, but the effect becomes negative after a certain level of growth is reached. In the OECD countries, the IV-FE revealed an N-shape connection. From 1979 through 2009, [55] researched the environmental Kuznets curve in Algeria. The results of the ARDL technique revealed that the EKC hypothesis did not exist in Algeria. From 1980 to 2011, [56] looked at the factors that influenced CO2 emissions in OECD countries. The EKC hypothesis curve between urbanization and CO2 emission is advocated in the study. This indicates that increased urbanization harms environmental quality. [57] used the ARDL model to conduct a study in Turkey and discovered that the EKC curve exists for CO2 measures. According to the study, increasing GDP per capita reduces CO2 emissions. From 1980 to 2014, [58] used structural breakdowns tests to examine the influence of clean energy and non-renewable energy use, as well as real income, on CO2 emissions in the United States. The Environmental Kuznets Curve was not well supported in the United States. The study by [18] looked into the role of environmental regulation in confirming the pollution hypothesis in two Brazil member groups, namely the fourth and fifth enlargement countries. The environmental Kuznets curve hypothesis and the PHH were valid in Brazil's nations. According to the study, EKC evidence is confirmed in the fifth enlargement countries, but it is not supported in the first to fourth expansion countries due to differences in environmental legislation adoption timelines. [42] looks at the history of the EKC as well as potential replacements. According to the method that combines the EKC and convergence methodologies, convergence is crucial for describing pollution emissions and concentration. Economic growth has a big impact on CO2, GHG emissions, and sulfur dioxide, but it has a smaller impact on non-industrial particle concentrations and nonindustrial GHG emissions. The literature does not agree on the income level at which CO2 emissions begin to drop whenever an EKC is empirically empirical evidence is noticed. [59] reviewed the literature on the environmental Kuznets curve and concluded that the evidence for the EKC's actuality is inconclusive. Only a few air quality indicators, though not conclusive, exhibit clear evidence of the Environmental

### *Economic Growth and Environmental Pollution; Testing the EKC Hypothesis in Brazil DOI: http://dx.doi.org/10.5772/intechopen.104388*

Kuznets Curve. Furthermore, some recent work has cast doubt on the Environmental Kuznets Curve (EKC's) presence even for indicators that appear to match the pattern. In fact, because of the scarcity of long time series of environmental data, several studies have used a cross-country approach. Even though environmental contamination increases in developing countries while decreasing in developed countries, the method may be misleading. As a result, rather than representing the evolution of a single economy over time, the Environmental Kuznets Curve (EKC) may only illustrate the juxtaposition of two (2) opposing patterns. In truth, single-country studies that looked at the environmental-income link over time found no evidence of an Environmental Kuznets Curve (EKC). [60] survey study offered empirical evidence for the Kuznets hypothesis and its possible interpretation in the environmental context. The survey found EKC for flow and local pollutants but a steadily increasing PIR for stock and global pollutant measures, as well as aggregate pollution measures. The survey shows, among other things, that time series analysis is better appropriate than cross-country analysis, based on estimating approaches. In [26] study, the inverted ushape curve between per-capita income and pollution for NO2 emissions was discovered. CO2 and income have an n-shape relationship. Furthermore, it was determined that the intensity of a country's trade did not affect its internal pollution levels. From 1965 until 2009, [61] conducted an EKC study in Algeria. The EKC hypothesis was supported by the ARDL results, which showed an inverted u-shape nexus between carbon dioxide emissions and GDP. In the long and short run, the results favored EKC in Algeria. [62] tested the EKC theory in 24 Asian countries from 1990 to 2011. In this investigation, the GMM method was used. The study found that estimations have the expected indications and are statistically significant in terms of the presence of an inverted u-shape relationship between emissions and income per capita, proving the existence of the EKC curve hypothesis. [63] evaluated the environmental Kuznets Curve theory, a panel of twenty OECD nations. Four estimates supported the EKC. In the OECD countries, country-specific findings receive varying levels of support for EKC. Environmental Kuznets Curve (EKC) was detected in nine countries, with five (5) documenting a classic inverted U-shape link. Three countries shared an N-shape nexus, whereas one country had an inverted N-shape nexus. The classic EKC hypothesis is useless for understanding the relationship between GDP and CO2 emissions, according to [64] empirical investigation. According to the study, there was no unanimity in the literature to provide an empirical foundation for the GED. The two competing viewpoints attempt to establish the existence of an EKC with an inverted U-shape. Empirically, an inverted N-shape global environmental Kuznets (GEKC) is demonstrated. In addition, according to [41, 56], wealthier households may produce higher car emissions due to increased vehicle ownership and driving. Because of their usage of top vintage and inadequate upkeep, poorer individuals may pollute more. The existence of a U-shape hydrocarbon emissions EKC relationship was demonstrated in this article using microdata from 1993 California automobiles. [65] investigated economic models for the EKC in a survey study. The environmental Kuznets Curve hypothesis, which states that the link between environmental pollution and per capita income is inverted U-shaped, was confirmed by empirical evidence [66]. The study indicated that, as money rises, environmental quality improves at first but ultimately deteriorates. [67] investigate the relationship between carbon dioxide emissions, income, energy use, and foreign trade in Pakistan from 1972 to 2008. Using the Johansen approach, the study revealed a quadratic long-run link between CO2 emissions and income, confirming the existence of EKC in Pakistan. Using panel data analysis, [68] examined the environmental Kuznets curve and sustainability from

**Figure 1.**

*Cubic and quadratic functions for the estimation of environment income nexus. The dashed lines indicates negative pollution levels.*

1990 to 2012. CO2 and income were shown to have an inverted U-shape relationship. The redesigned EKC revealed an inverted U-shape link between sustainability and human development. In a study conducted in Vietnam from 1981 to 2011, [69] discovered that EKC did not exist. Because the ARDL method suggested that capital increases CO2 emissions, this was the case. [70] investigated the potentials of renewable energy in Indonesia from 1971 to 2010, taking the environmental Kuznets curve into account. The ARDL method revealed an inverted u-shape EKC nexus between economic growth and environmental degradation. The approximate turning point was determined to be 7729 dollars per capita, which is beyond the study sample's time period. [71] use new international data to evaluate the EKC theory of IWP-industrial water pollution. According to the study, while the sector share of output growth exhibits a Kuznets-type-trajectory-KTT, the other two indicators do not. When considered together, the findings suggest that the EKC hypothesis for industrial water contamination is incorrect; it rises rapidly until middle-income status is attained, then stays relatively stable. [72] looked at the Kuznets curve for the environment in 113 countries from 1971 to 2004. The authors' assessment of the findings shows that the energy EKC hypothesis is not viable. The link is monotonously positive for the entire world. After 1989, there was a decrease in elasticity. The study discovered no evidence of EKC at the country level. The Environmental Kuznets Curve –EKC is depicted graphically in **Figure 1**.
