This study examines the relationship between economic growth and environmental quality in China. We focus on the hypothesis
of environmental Kuznets curve that pollution first rises and then falls with increasing income. We investigate prefecture-level panel
data in China over the period 2003–2010 by using fixed effects model and split sample regressions. The empirical results tend to con-
firm the inverse U-shaped relationship as well as the N-shaped relationship between income and pollution. The full-sample results
clearly support the two relationships for both air pollution and water pollution.
The split sample results are rather complicated. For so2, the two-subsample regressions report that income contributes to reduce
air pollution in advanced, coastal, and southern areas, while the cubic regressions provide significant results for the most subsamples.
The four-subsample regressions show a negative relationship between income and air pollution in the east region, an inverse Ushaped
relationship in the central region, an insignificant relationship in the west region, and a positive relationship in the northeast
region. The N-shaped pattern is statistically significant in the east region and the northeast region. For wwd, the two-subsample regressions
report the inverse U-shaped relationship and the N-shaped relationship between income and water pollution in most regions.
The four-subsample regressions provide similar results. The inverse U-shaped relationship is found in the east and the
central regions, and the N-shaped relationship is observed in the east, west, and northeast regions.
It is noteworthy in the split-sample regressions that the negative relationship between income and air pollution is observed in economically
developed areas such as advanced, coastal, and east areas. This supports the environmental Kuznets curve hypothesis since
the hypothesis argues that higher income improves environmental quality at high income levels. Overall, the split-sample regressions
show somewhat different results between air pollution and water pollution. Different technologies and regulations can possibly account
for the different results between pollutants as discussed by Poon et al. (2006) and Yaguchi et al. (2007).
84 S. Lee, D.-W. Oh / China Economic Review 36 (2015) 73–85
In sum, this study confirms both the environmental Kuznets curve hypothesis and the N-shaped relationship hypothesis. Theories
suggest that the N pattern holds more for advanced countries than for developing countries. This hypothesis is supported by the result
that the N-shaped relationship is pronounced in the east and northeast region. The observed N pattern may imply that China has acquired
a sufficient development level, which is contrary to the previous expectation that the inverse U-shaped relationship is more
pronounced in China due to China's relatively low economic development