To investigate the plausibility of these estimates further note that neutral technological progress of 1% would raise GDP and GDP per person by 1%. Therefore, neutral technological progress creates a positive scale effect on concentrations, but according to our estimates this scale effect is more than offset by a negative technique effect.27 Therefore our estimates indicate that increases in economic activity driven by neutral technological progress lowers concentrations read.
Alternatively, if we consider an increase in GDP fueled entirely by capital accumulation the picture is far less favorable to the environment. Our estimates indicate that a 1% increase in the capital to labor ratio raises concentrations by about 1% all else equal. However an increase in the capital to labor ratio will have accompanying impacts on the scale of economic activity and on real incomes.
If we make a back-of-the-envelope calculation by taking capital’s share in the value of domestic output at 1/3, then capital accumulation leading to a 1% increase in the capital to labor ratio creates a 1/3 percentage point increase in GDP per capita and GDP/km . Applying the estimates from table 4 we find that the induced technique effect is approximately -.5 and the induced scale effect is perhaps .08. Adding the direct composition effect to these estimates suggests that economic growth fueled entirely by capital accumulation raises pollution concentrations.
While these two exercises are not tests of our theory, the results are reassuringly close to what we may have expected ex ante. More speculatively, these last two thought experiments may also provide a possible explanation for the Kuznets curve that many authors have found between pollution and per capita income. If economic growth is driven primarily by capital accumulation in the early stages of development, and primarily by technological progress in later years, then our results indicate that pollution concentrations may at first rise and then fall with increases in income per capita.