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Use Less, Pay More: Can Climate Policy Address the Unfortunate Event for Being Poor?

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Abstract

The paper develops a two-region endogenous growth model with climate change affecting the countries' capital stocks negatively. We compare two different policies aimed at supporting less developed countries: climate mitigation by rich countries, which diminishes the increase in stock pollution and hence capital depreciation, and income transfers in the tradition of development aid. Under a mild set of assumptions we find that active climate policies are more efficient for rich economies and also, remarkably, better for poor countries than additional development aid. The main reason is the difference between the two policies with respect to their effects on economic growth. The results are robust with respect to possible model extensions.

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Bibliographic Info

Paper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series CER-ETH Economics working paper series with number 12/166.

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Length: 35 pages
Date of creation: Aug 2012
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Handle: RePEc:eth:wpswif:12-166

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Keywords: Climate policy; development aid; endogenous growth; stock pollution;

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  1. Smulders, Sjak & Gradus, Raymond, 1996. "Pollution abatement and long-term growth," European Journal of Political Economy, Elsevier, vol. 12(3), pages 505-532, November.
  2. Berlinschi, Ruxanda & Daubanes, Julien, 2012. "Foreign aid and oil taxes: helping the poor in oil-rich countries," Environment and Development Economics, Cambridge University Press, vol. 17(03), pages 249-268, June.
  3. Brock, William A. & Taylor, M. Scott, 2005. "Economic Growth and the Environment: A Review of Theory and Empirics," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 28, pages 1749-1821 Elsevier.
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  7. Edward Barbier, 1999. "Endogenous Growth and Natural Resource Scarcity," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 14(1), pages 51-74, July.
  8. World Bank, 2010. "World Development Report 2010," World Bank Publications, The World Bank, number 4387, October.
  9. Smulders, J.A., 1995. "Environmental quality and pollution-augmenting technological change in a two-sector endogenous growth model," Open Access publications from Tilburg University urn:nbn:nl:ui:12-153411, Tilburg University.
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  12. Zeller, Manfred & Schrieder, Gertrud & von Braun, Joachim & Heidhues, Franz, 1997. "Rural finance for food security for the poor," Food policy reviews, International Food Policy Research Institute (IFPRI) 4, International Food Policy Research Institute (IFPRI).
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  14. Olli Tahvonen, 1995. "Dynamics of pollution control when damage is sensitive to the rate of pollution accumulation," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 5(1), pages 9-27, January.
  15. Xepapadeas, Anastasios, 2005. "Economic growth and the environment," Handbook of Environmental Economics, Elsevier, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 3, chapter 23, pages 1219-1271 Elsevier.
  16. Daron Acemoglu & Jaume Ventura, 2001. "The World Income Distribution," NBER Working Papers 8083, National Bureau of Economic Research, Inc.
  17. Grimaud, André, 2009. "Taxation of a Polluting Non-Renewable Resource in the Heterogeneous World," IDEI Working Papers 541, Institut d'Économie Industrielle (IDEI), Toulouse.
  18. Christian Scholz & Georg Ziemes, 1999. "Exhaustible Resources, Monopolistic Competition, and Endogenous Growth," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 13(2), pages 169-185, March.
  19. Lucas Bretschger & Simone Valente, 2011. "Climate Change and Uneven Development," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113(4), pages 825-845, December.
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  1. Climate mitigation versus development aid
    by Economic Logician in Economic Logic on 2012-09-20 14:35:00

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