A primary explanation of why economic freedom has a positive correlation with other important human and societal quality metrics is because economically free countries have higher levels of economic growth and more investment. People are wealthier and poverty rates are lower.¹

Higher levels of income are imperative to better environmental outcomes. After higher priorities like food, water and shelter are met, greater wealth provides more resources to dedicate to environmental protection. Richer countries have more funds to invest in public services such as sanitation, garbage collection, and pollution abatement. Through policies, accumulation of knowledge and technological progress, public and private sectors reduce unwanted environmental by products.

As Yale’s report emphasizes, “wealth, which enables investments in environmental protection, leads to higher EPI scores by allowing countries to upgrade environment-related infrastructure and adopt better pollution-control technologies.”² The report goes on to say that “a consistent finding across Environmental Performance Index reports and other environmental analyses is that wealthy democracies rise to the top of rankings.”³

The visual depiction of wealth’s positive impact on the environment is the environmental Kuznets curve (EKC).⁴ The EKC is an inverted-U relationship between both pollution and economic development where growth from industrialization initially results in higher levels of pollution. Over time, however, people spend their incomes in cleaning up the environment and can more easily afford the compliance costs of environmental policies.   

Environmental Kuznets Curve

The environmental Kuznets curve (EKC) is a hypothesized relationship between various indicators of environmental degradation and per capita income.

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Greater wealth also spurs investment in cleaner, more efficient processes as well as products. A cousin of the EKC, called the environmental transition curve, emphasizes the role of innovation and technology in bending pollution curves backward.⁵ In effect, technological progress more quickly offsets the higher emissions from economic growth, resulting in cleaner, stronger economies. These investments will help turn green premiums into economic advantages and will help developing countries bend pollution curves back faster than it historically took more developed countries. 

Peer reviewed literature has demonstrated the EKC exists for several ecological variables such as waste, waste emissions, sulfur dioxide and suspended particulate matter.⁶ Other literature has found insufficient evidence of an EKC for certain environmental indicators. The moment when the inverted U in the Kuznets curve starts bending downward depends on many factors and does not uniformly apply to all emissions or to all countries. 

1.  James Gwartney, Robert Lawson, Joshua Hall, and Ryan Murphy, 2022 Economic Freedom of the World: 2022 Annual Report. Fraser Institute. https://www.fraserinstitute.org/sites/default/files/economic-freedom-of-the-world-2022.pdf. The literature review Fraser’s Index cites is: Joshua Hall and Robert Lawson (2014). Economic Freedom of the World: An Accounting of the Literature, Contemporary Economic Policy 32, 1: 1–19. ; and Robert Lawson, Economic Freedom in the Literature: What Is It Good (Bad) For?, pp. 187–200 in this edition.[↩]
2.  Wolf, M. J., Emerson, J. W., Esty, D. C., de Sherbinin, A., Wendling, Z. A., et al. 2022 Environmental Performance Index. New Haven, CT: Yale Center for Environmental Law & Policy, https://epi.yale.edu/epi-results/2022/component/epi[↩]
3.  Ibid. [↩]
4.  Originally, Kuznets examined the relationship between GDP and income inequality. See, Bruce Yandle, Maya Vijayaraghavan, and Madhusudan Bhattarai, “The Environmental Kuznets Curve: A Primer,” The Property and Environment Research Center, May 2002, https://www.perc.org/wp-content/uploads/2018/05/environmental-kuznets-curve-primer.pdf.[↩]
5.  Indur M. Goklany, Affluence, Technology, and Well-Being, 53 Case W. Rsrv. L. Rev. 369, 2002, https://scholarlycommons.law.case.edu/caselrev/vol53/iss2/9 [↩]
6.  Miah et al, https://link.springer.com/article/10.1007/s10669-010-9303-8 and https://www.sciencedirect.com/science/article/abs/pii/S1364032115012228[↩]