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Pollution and Resource Extraction: Do they Matter for the Dynamics of Growth?

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  • George Economides
  • Apostolis Philippopoulos

Abstract

This paper shows that whether pollution occurs as a by-product of economic activity (which is supposed to be the case in DCs), or as resource extraction (which is supposed to be the case in LDCs), matters for the dynamics of the optimal growth-environment-policy link. The context is a dynamic general equilibrium model of endogenous growth, in which private agents treat natural resources as a public good and the government chooses second-best environmental policy. We show that resource extraction can lead to indeterminacy, i.e. many different equilibrium transition paths. This can partly explain the observed persistent differences in growth among LDCs with similar fundamentals and endowments.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 361.

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Date of creation: 2000
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Handle: RePEc:ces:ceswps:_361

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Keywords: Pollution and resource extraction; growth; dynamics; second-best policy;

References

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  1. Lopez Ramon, 1994. "The Environment as a Factor of Production: The Effects of Economic Growth and Trade Liberalization," Journal of Environmental Economics and Management, Elsevier, vol. 27(2), pages 163-184, September.
  2. Kolstad, Charles D. & Krautkraemer, Jeffrey A., 1993. "Natural resource use and the environment," Handbook of Natural Resource and Energy Economics, Elsevier, in: A. V. Kneese† & J. L. Sweeney (ed.), Handbook of Natural Resource and Energy Economics, edition 1, volume 3, chapter 26, pages 1219-1265 Elsevier.
  3. Barrett, Scott, 1998. "Political Economy of the Kyoto Protocol," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 14(4), pages 20-39, Winter.
  4. John, A & Pecchenino, R, 1994. "An Overlapping Generations Model of Growth and the Environment," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 104(427), pages 1393-1410, November.
  5. Benhabib, Jess & Farmer, Roger E.A., 1991. "Indeterminacy and Increasing Returns," Working Papers, C.V. Starr Center for Applied Economics, New York University 91-59, C.V. Starr Center for Applied Economics, New York University.
  6. Larry E. Jones & Rodolfo E. Manuelli, 1994. "The Sources of Growth," Macroeconomics, EconWPA 9411002, EconWPA, revised 05 Mar 1999.
  7. Ligthart, Jenny E. & van der Ploeg, Frederick, 1994. "Pollution, the cost of public funds and endogenous growth," Economics Letters, Elsevier, Elsevier, vol. 46(4), pages 339-349, December.
  8. Benhabib Jess & Perli Roberto, 1994. "Uniqueness and Indeterminacy: On the Dynamics of Endogenous Growth," Journal of Economic Theory, Elsevier, Elsevier, vol. 63(1), pages 113-142, June.
  9. Bovenberg, A.L. & Smulders, S., 1993. "Environmental Quality and Pollution-Saving Technological Change in Two- Sector Endogenous Growth Model," Papers, Tilburg - Center for Economic Research 9321, Tilburg - Center for Economic Research.
  10. Xepapadeas, Anastasios, 1997. "Economic development and environmental pollution: traps and growth," Structural Change and Economic Dynamics, Elsevier, Elsevier, vol. 8(3), pages 327-350, August.
  11. Lopez, Ramon, 1997. "Environmental externalities in traditional agriculture and the impact of trade liberalization: the case of Ghana," Journal of Development Economics, Elsevier, Elsevier, vol. 53(1), pages 17-39, June.
  12. Oakland, William H., 1987. "Theory of public goods," Handbook of Public Economics, Elsevier, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 9, pages 485-535 Elsevier.
  13. Lans Bovenberg, A. & Smulders, Sjak, 1995. "Environmental quality and pollution-augmenting technological change in a two-sector endogenous growth model," Journal of Public Economics, Elsevier, Elsevier, vol. 57(3), pages 369-391, July.
  14. Munro, Gordon R. & Scott, Anthony D., 1985. "The economics of fisheries management," Handbook of Natural Resource and Energy Economics, Elsevier, in: A. V. Kneese† & J. L. Sweeney (ed.), Handbook of Natural Resource and Energy Economics, edition 1, volume 2, chapter 14, pages 623-676 Elsevier.
  15. Tahvonen Olli & Kuuluvainen Jari, 1993. "Economic Growth, Pollution, and Renewable Resources," Journal of Environmental Economics and Management, Elsevier, vol. 24(2), pages 101-118, March.
  16. Benhabib, Jess & Gali, Jordi, 1995. "On Growth and Indeterminacy: Some Theory and Evidence," Working Papers, C.V. Starr Center for Applied Economics, New York University 95-08, C.V. Starr Center for Applied Economics, New York University.
  17. Rodrik, Dani, 1996. "Coordination failures and government policy: A model with applications to East Asia and Eastern Europe," Journal of International Economics, Elsevier, Elsevier, vol. 40(1-2), pages 1-22, February.
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Cited by:
  1. Economides, George & Miaouli, Natasha, 2006. "Federal transfers, environmental policy and economic growth," Journal of Macroeconomics, Elsevier, Elsevier, vol. 28(4), pages 680-699, December.

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