Is the Environment Compatible with Growth? Adopting an Integrated Framework

Lucas Bretschger

No 16/260, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: The paper develops an integrated baseline model to assess the trade-offs be- tween the natural environment and economic growth. Consumption growth is considered under welfare and sustainability aspects. The framework features capital accumulation and the sectoral structure of the economy as key elements to cope with resource scarcity and pollution. Model extensions varying the num- ber of sectors and inputs, changing central functional forms, and introducing poor input substitution and population growth are presented. The setup high- lights the dual role of used inputs as a source of environmental problems and a part of the solution; it also discusses uncertainty and momentum effects. The paper concludes that the environment and economic growth can be compatible but that small deviations from the optimal paths my entail unsustainable de- velopment. Critical issues for sustainability are insufficient foresight, increasing damage intensity, and suboptimal policy making while population growth and poor input substitution are not necessarily precarious for future development.

Keywords: Natural environment; endogenous growth; multisector model; poor substitution; population growth (search for similar items in EconPapers)
JEL-codes: O41 O47 Q43 Q56 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2016-10
New Economics Papers: this item is included in nep-ene, nep-env, nep-gro and nep-res
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