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Sustainable Economic Growth: Structural Transformation with Consumption Flexibility

  • Ramón López
  • Sang Won Yoon

The standard theoretical literature has shown that environmental sustainability and positive economic growth are not incompatible as long as environmental policies are optimal. However, in showing this result earlier studies have relied on strong assumptions that may appear to charge the dice in favor of such result. Here we show that once the role of the consumption composition effect is recognized, environmentally sustainable economic growth may exist even if some of the most questionable assumptions used by the canonical models are relaxed. In particular, we show that sustainable growth is possible even if environmental and man-made factors of production are complement rather than highly substitutable as has been invariably assumed by the literature and even if technological change is entirely pollution-augmenting.

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Paper provided by University of Chile, Department of Economics in its series Working Papers with number wp375.

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Length: 38 pages
Date of creation: Jan 2013
Date of revision:
Handle: RePEc:udc:wpaper:wp375
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