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    The passage given below is followed by a set of five questions. Choose the most appropriate answer to each question.
    New Vision on the Relationship between Income and Water Withdrawal in Industry Sector
    Abdolnaser Hemati

    Freshwater resources are vital for maintaining human life, health, agricultural production, economic activities as well as critical ecosystem functions. As populations and economies grow, new constraints on freshwater resources are appearing, raising problems for limits of water availability. Accordingly, the analysis of the national water withdrawal intensity measurement becomes an important policy issue. To serve these purposes, some water withdrawal efficiency indicators have been developed and applied to explain differences in performance between countries and international benchmarking.

    It should be noted that the income elasticity of IWW (industrial water withdrawal) is one solution used in this paper. In recent years, the relationship between income elasticity of natural resources use and income has attracted an increasing attention among academic, non-governmental organizations, and the media. A notable empirical finding of the recent environmental economics literature has been the existence of an inverted U-shaped relationship between per capita income and pollution (per capita emissions) of many local air pollutants. Since this relationship bears a resemblance to the Kuznets relationship between income and income inequality, it is known as the Environmental Kuznets Curve (EKC) and has spawned a vast number of papers in recent years. In addition, attempts have been made to estimate EKCs for a wide range of environmental indicators, including energy use, deforestation and municipal waste. The shape of the EKC, attributed to scale, composition and technique effects (SCTE) as discussed below, would also seem to apply to (income elasticity of) water consumption. The main reason to disregard water use in EKC studies would appear to be a lack of socioeconomic- hydrological data, although some recent investigations and dataset have now resolved somewhat this problem.

    In this paper, we examine the relationship between IWW per capita and GDP per capita using Smooth Transition Regression (STR) model for 132 countries across the world based on cross section data in 2006. The following section will provide a brief review of the related literature. Section 3 introduces the econometric methodology and empirical results, and the final section presents the conclusions of the present study. The majority of EKC literature examines pollution levels as a function of income. This has led to the criticism that such research ignores the natural resource component of environmental quality. These studies tend to treat resource use identical to pollution as an indicator of environmental quality pointing to natural resources based on environmental Kuznets curve (NRBEKC). Like pollution, resource use can provide an economic benefit coupled with an undesired environmental impact. Thus, many of the theoretical explanations for the existence of EKCs for natural resources mirror those for pollution. The inverted U relationship between income and pollution is typically explained in terms of the interaction of scale, composition and technique effects (SCTEs). The scale effect (SE) implies that as the scale of the economy grows (ceteris paribus), IWW will do so. The composition effect (CE), however, refers to the fact that as economies develop, there is totally a change in emphasis from heavy industry to light manufactures and services sectors, and also from high water intensity to low water intensity in industrial, agriculture and domestic sectors. Since the latter are typically less resource intensive than the former, the composition effect of growth, ceteris paribus, will reduce water use. Finally, there is the technique effect (TE). As incomes rise there is likely to be an increased demand for environmental regulations. The effect of these regulations must be considered to reduce water intensity due to improved techniques of production and consumption.

    Which of the following aspects can be seen as being contradicted by the author in the passage?

    Options :-

    1. Explanation for the inverted U relationship.
    2. Importance of freshwater for maintaining human life.
    3. Use of EKCs for a wide range of environmental indicators.
    4. Reasons to disregard water use in EKC studies.
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