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Growth and Pollution Convergence: Theory and Evidence

  • C. Ordás Criado

    ()

    (ETH Zurich, Center for Energy Policy and Economics (CEPE), Switzerland; Université Laval, Département d’économique, Canada)

  • S. Valente

    (ETH Zurich, Center of Economic Research (CER), Switzerland)

  • T. Stengos

    (University of Guelph, Department of Economics, Canada)

Stabilizing pollution levels in the long run is a pre-requisite for sustainable growth. We develop a neoclassical growth model with endogenous emission reduction predicting that, along optimal sustainable paths, pollution growth rates are (i) positively related to output growth (scale effect) and (ii) negatively related to emission levels (defensive effect). This dynamic law reduces to a convergence equation that is empirically tested for two major and regulated air pollutants - sulfur oxides and nitrogen oxides - with a panel of 25 European countries spanning the years 1980-2005. Traditional parametric models are rejected by the data. More flexible regression techniques confirm the existence of both the scale and the defensive effect, supporting the model predictions.

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Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 33_11.

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Date of creation: Jul 2011
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Handle: RePEc:rim:rimwps:33_11
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