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Economic growth and the environment: Theory and facts

  • Bartz, Sherry
  • Kelly, David L.

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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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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