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Economic growth and the environment: Theory and facts

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  • Bartz, Sherry
  • Kelly, David L.

Abstract

Several recent papers propose competing theoretical explanations for the empirical observation of an inverted U-shape relationship between environmental degradation and per-capita income. We propose the following test of the theory: calibrate a theoretical model to an already developed economy using information unrelated to the pollution-income curve. Then simulate the model starting from a less developed initial condition and compare the predicted pollution-income relationship with that in the data. Our results are mixed. Some support exists for the theory that the inverted U-shape results from a corner solution in which less developed countries do not abate pollution. However, because we find abatement is relatively inexpensive, the model predicts pollution peaks at a level of per capita income much lower than that observed in our U.S. data. For some pollutants, we find evidence of a structural break in preferences in the early 1970s. When the structural break is added, the model performs better for two of three pollutants.

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Bibliographic Info

Article provided by Elsevier in its journal Resource and Energy Economics.

Volume (Year): 30 (2008)
Issue (Month): 2 (May)
Pages: 115-149

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Handle: RePEc:eee:resene:v:30:y:2008:i:2:p:115-149

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Web page: http://www.elsevier.com/locate/inca/505569

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References

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Citations

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Cited by:
  1. Garth Heutel, 2011. "Online Appendix to "How Should Environmental Policy Respond to Business Cycles? Optimal Policy under Persistent Productivity Shocks"," Technical Appendices 10-62, Review of Economic Dynamics.
  2. David L. Kelly, 2006. "Subsidies to Industry and the Environment," Working Papers 0602, University of Miami, Department of Economics.
  3. Du, Limin & Wei, Chu & Cai, Shenghua, 2012. "Economic development and carbon dioxide emissions in China: Provincial panel data analysis," China Economic Review, Elsevier, vol. 23(2), pages 371-384.
  4. Ding, Zhanwen & Wang, Shuxun & Jiang, Shumin, 2013. "Research on a dynamics with bounded rationality for high-carbon and low-carbon energy economic system," Economic Modelling, Elsevier, vol. 33(C), pages 375-380.
  5. Hwang, In Chang & Reynes, Frederic & Tol, Richard, 2014. "The effect of learning on climate policy under fat-tailed uncertainty," MPRA Paper 53681, University Library of Munich, Germany.
  6. Arbex, Marcelo & Perobelli, Fernando S., 2010. "Solow meets Leontief: Economic growth and energy consumption," Energy Economics, Elsevier, vol. 32(1), pages 43-53, January.
  7. D. Dragone & L. Lambertini & A. Palestini, 2011. "Regulating Environmental Externalities through Public Firms: A Differential Game," Working Papers wp738, Dipartimento Scienze Economiche, Universita' di Bologna.
  8. Arman, Michael & Zuo, Jian & Wilson, Lou & Zillante, George & Pullen, Stephen, 2009. "Challenges of responding to sustainability with implications for affordable housing," Ecological Economics, Elsevier, vol. 68(12), pages 3034-3041, October.
  9. Carlo Carraro & Barbara Buchner, 2004. "Economic and Environmental Effectiveness of a Technology-based Climate Protocol," Working Papers 2004.61, Fondazione Eni Enrico Mattei.
  10. Carlos A. Flores & Alfonso Flores-Lagunes & Dimitrios Kapetanakis, 2009. "Lessons from Quantile Panel Estimation of the Environmental Kuznets Curve," Working Papers 2010-4, University of Miami, Department of Economics.
  11. Barbara Annicchiarico & Fabio di Dio, 2013. "Environmental Policy and Macroeconomic Dynamics in a New Keynesian Model," CEIS Research Paper 286, Tor Vergata University, CEIS, revised 30 Sep 2013.
  12. Heutel, Garth, 2011. "How Should Environmental Policy Respond to Business Cycles? Optimal Policy under Persistent Productivity Shocks," Working Papers 11-8, University of North Carolina at Greensboro, Department of Economics.

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