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Wealth Heterogeneity and Escape from the Poverty-Environment Trap

  • Masako Ikefuji

    (Osaka University)

  • Ryo Horii

    (Osaka University)

A mutual link between poverty and environmental degradation is examined in an overlapping generations model with environmental externality, human capital, and credit constraints. Environmental quality affects labor productivity and thus wealth dynamics, whereas wealth distribution determines the degree to which agents rely upon natural resources and therefore the evolution of environmental quality. This interaction creates a `poverty-environment trap,' where a deteriorated environment lowers income, which in turn accelerates environmental degradation. We show that greater wealth heterogeneity is the key to escaping the poverty-environment trap, although it has negative effects both on the environment and output when not in the trap.

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File URL: http://econwpa.repec.org/eps/dev/papers/0505/0505001.pdf
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Paper provided by EconWPA in its series Development and Comp Systems with number 0505001.

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Length: 28 pages
Date of creation: 02 May 2005
Date of revision:
Handle: RePEc:wpa:wuwpdc:0505001
Note: Type of Document - pdf; pages: 28
Contact details of provider: Web page: http://econwpa.repec.org

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