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Exploring the effect of including the environment in the neoclassical growth model

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  • George Halkos

    (University of Thessaly)

  • Iacovos Psarianos

    (University of Thessaly)

Abstract

This study begins with a brief presentation of the Neoclassical Model of economic growth and continues with the inclusion of two additional variables that affect welfare in opposing ways: pollution and abatement expenditures. The optimal steady-state conditions are derived allowing for a preliminary comparison of the resulting balanced growth paths under the criterion of welfare maximization with and without environmental externalities. Finally, using a balanced panel data of 43 countries and for the time period 1990–2011 we test the validity of including the environment in the neoclassical growth model approximating pollution abatement with the electricity production from renewable sources and pollution with carbon dioxide emissions. With the help of adequate econometric panel data methods we test the validity of the environmental Kuznets curve hypothesis for the full sample, as well as for the OECD and non-OECD countries.

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  • George Halkos & Iacovos Psarianos, 2016. "Exploring the effect of including the environment in the neoclassical growth model," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 18(3), pages 339-358, July.
    • Handle: RePEc:spr:envpol:v:18:y:2016:i:3:d:10.1007_s10018-016-0146-5
    DOI: 10.1007/s10018-016-0146-5
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    More about this item

    Keywords

    Economic growth; Physical capital; Technological; Progress; Environment; Pollution;
    All these keywords.

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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