Economic Growth as a Double-Edged Sword: The Pollution-Adjusted Kaldor-Verdoorn Effect

Guilherme de Oliveira () and Gilberto Lima

No 2021_20, Working Papers, Department of Economics from University of São Paulo (FEA-USP)

Abstract: There is evidence that pollution concentration impacts negatively on labor productivity, which has implications for the Kaldor-Verdoorn law. While the growth rate of labor productivity varies positively with the growth rate of output, the growth rate of pollution concentration also varies positively with the latter. As a result, an increase in pollution concentration leading to environmental degradation might offset the productivity-enhancing effect of a rise in the scale of output production. This paper explores such a double-edged sword feature of output growth in a demand-led macrodynamic framework having pollution concentration as a further influence on the class conflict over the functional distribution of the social product. The stability of the environment-economy system in the long run hinges on how output growth varies with the functional distribution of income. When output growth is positively related to the wage share, the balanced growth path is unstable. When output growth varies positively with the profit share, stability is a possibility, but the system undergoes fluctuations in the wage share and the ratio of capital to pollution concentration when converging to the balanced growth path. Environmental preservation and functional distribution and growth of the social product interact to each other in a complex way.

Keywords: Economic growth; pollution concentration; labor productivity; functional Distribution of the social product (search for similar items in EconPapers)
JEL-codes: E11 O44 Q52 (search for similar items in EconPapers)
Date: 2021-07-26
New Economics Papers: this item is included in nep-cwa, nep-env, nep-gro, nep-mac and nep-pke
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Journal Article: Economic growth as a double-edged sword: The pollution-adjusted Kaldor-Verdoorn effect (2022)
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