Pollution abatement and long-term growth

Abstract

To examíne the question whether sustained growth and environmental quality are compatible, a macroeconomic model is developed where the environment is essential for production and welfare and where the growth rate is an endogenously detemvned variable. Pollution is an inevitable side-product of economic activity. It can be reduced by spending a fraction of total output on abatement activities. It is examined first under what conditions sustainable growth is feasible and when this is optimal. The influence of increased environmental care on the growth rate is traced. Increased environmental care affects long-term output growth through three channels: crowding out of investment, pruductivity improvements, and intertemporal substitution of consumption. Externalities arise because the economy-wide leve! of pollution affects negatively the productivity of produccion factors and welfaze.' We are indebted to Athur van Scest for helpful comments on Appendiz A, and to L. Bovenberg, Th. van de Klundert and two anonymous referees for useful comments on an earlier draft. The views expressed in this paper are our own and do not necessazily retlect those of the Ministry of Finance." Correspondence to: 1. Smulders,

Neoclassical Growth, Environment and Technological Change: the Environmental Kuznets Curve

“…αλ α γ − Thus, for a high enough value of , 2 k should be expected to be lower than /(1 ) αλ α γ − and in that case, any change in preferences for a cleaner environment would cause a reduction in the growth rate. Similar results were obtained by Smulders and Gradus (1996) in their model with pollution abatement.…”

“…According to this production function the rate of output growth is given by 10 In Forster (1973) and Selden and Song (1995) it is assumed that environmental quality has no effect of production. 11 The specification of functions (3) and (4) were used by Smulders and Gradus (1996) in their analysis of the effects of pollution control on long-run growth, although for these authors z stands for a control variable (pollution abatement), whereas in this paper z stands for a state variable (abatement technology). This approach corresponds to that adopted by Reis (2001).…”

“…In other words, we are assuming that environmental quality is (indirectly) a production factor. Mohtadi (1996) and Smulders and Gradus (1996) follow this approach in their analysis of pollution abatement on long-run growth. More recently Cassou and Hamilton (2004) have also adopted this approach in their investigation of the optimal patterns of economic development in a two-sector endogenous growth model with clean and dirty goods.…”

Green Attitude and Economic Growth

“…Environmental damage increases jointly with an increasing capital stock, K, and decreases with abatement activity, E. 1 More concretely, pollution emerges according to K(t)/E(t). This presentation is based, among others, on Smulders and Gradus (1996) who show within a more general approach that a sustainable growth path (as represented by a non-increasing level of pollution together with non-decreasing per-capita income, see e. g. ?, p. 147) may only be achieved if the pollution elasticity of capital does not exceed the pollution elasticity of environmental expenditure.…”

Climate Change and Technical Progress: Impact of Informational Constraints

“…The natural question one may ask is: what additional insight and implications follow from the inclusion of directed technical change into such a model. To answer it, we employ the same strategy as in the early paper by Smulders [14] and compare three simplified models in their predictions. We compare the results of the model with exogenous technical change, similar to the one employed in the paper of Bréchet, Camacho and Veliov [5], with those of undirected but endogenous technical change in the spirit of papers by Barbier and Grimaud [4,6] and with the outcome of the model featuring directed endogenous technical change with similar ideas as in Acemoglu et al [1].…”