The main subject of interest in this research is the impact of economic growth on environmental performance. Meadows et al. (1992) argues that, although a threat to the environment in the long-run, economic growth is essential to maintaining environmental quality (PAPER 1).

This concern has resulted in a large stream of research based on the notion of environmentally sustainable economic development that investigates the trade-off between economic growth and environmental quality (Anderson, 1992). The principal view is that a conventional trade-off between economic growth and environmental quality is preventable. In actual fact, there is high possibility of reducing or reversing trade-off with environmental management through appropriate policy interventions (Antle and Heidebrink, 1995; Grossman and Krueger, 1995; Selden and Song, 1994; Shafik, 1994). This is of major significance especially to developing countries like Brazil who, under pressure to attain rapid economic growth face the risk of implementing economic policies that run contrary to the objective of their long-term environmental sustainability (Serageldin and Steer, 1994) (PAPER 1).

This paper aims to investigate the environmental and economic relationship based on the EKC analysis in the case of Brazil which will essentially enable the economy minimise trade-off cost. In this chapter, the theoretical framework of the relationship between economic growth and environmental degradation will be reviewed. Also considering various literatures that have attempted to empirically analyse the relationship.

CONCEPTUAL ISSUES

THE ENVIRONMENTAL KUZNETS CURVE

The EKC became an autonomous and essentially empirical research issue, following the studies of Grossman and Krueger (1991), Shafik and Bandyopadhyay (1992) World Development Report 1992 and Panayotou (1993) (PAPER 3). Subsequent literature on EKC investigated the existence of significant statistical correlation between the level of economic activity and environmental degradation without profoundly assessing the nature of causation between the variables.

In the EKC analysis, environmental degradation is the dependent variable. This suggests that during an empirical examination, a unidirectional causal relationship is implicitly assumed. Implying that a change in the level of economic activity results in subsequent change in environmental quality. Although this postulate may apparently seem rational, it may not apply to all situations. However, the assumption of the direction of causality may hinder a profound understanding of the environment-economic relationship and this may have significant policy implications such as erroneous policy conclusions (paper 5).

ENVIRONMENTAL POLLUTANTS

The empirical results for the net impact of economic development on environmental degradation seem to depend on the nature of different pollutants (Shafik and Bandyopadhyay, 1992; Hettige et al., 1992; Birdsall and Wheeler, 1993; Diwan and Shafik, 1992) such as carbon monoxide(CO), carbon dioxide (CO2) the principle greenhouse gas emitted as a result of human activities such as the burning of coal, oil and natural gases, chlorofluorocarbons, sulphur dioxide(SO2) gas produced from burning coal and nitrogen oxide(NO) which causes smog and acid rain.

Selden and Song (1994) investigated considering different air pollutants like SO2, NOx and CO and found akin results related to EKC. However, the inflection points are substantially different across studies. Holtz-Eakin and Selden (1995) found that CO2 emissions did not show the same EKC pattern. Rather, Shafik and Bandyopadhyay (1992) show that the CO2 emissions and per capita GDP are monotonic in direction (PAPER 1).