Environmental adjustment of the EU27 GDP: an econometric quantitative model

Luis Antonio Galiano Bastarrica (), Eva M. Buitrago Esquinas (), María Ángeles Caraballo Pou () and Rocío Yñiguez Ovando ()
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Luis Antonio Galiano Bastarrica: Universidad de Sevilla
Eva M. Buitrago Esquinas: Universidad de Sevilla
María Ángeles Caraballo Pou: Universidad de Sevilla
Rocío Yñiguez Ovando: Universidad de Sevilla

Environment Systems and Decisions, 2023, vol. 43, issue 1, 115-128

Abstract: Abstract The use of natural resources as an input to economic growth and the interactions between economic and ecological systems have resulted in an accumulation of environmental externalities. This accumulation can negatively affect future levels of welfare and economic growth. In this paper, such dynamics are assessed and quantified by introducing explicit environmental externality variables in a production function. This is performed in an endogenous growth model where cumulative environmental externalities interact with economic growth. Using efficiency analysis, a dynamic econometric model is estimated showing the significance of a negative influence of past levels of use of natural resources on GDP over a broad range of stochastic frontier analysis estimations. The results are applied to propose an alternative specification to the production function of a modelling tool used by the European Commission for the assessment of climate policies in the European Union. The findings show that observed GDP is overestimated when environmental externalities are not considered.

Keywords: Economic growth; Climate change; Environmental externalities; Production functions; Stochastic frontier analysis; Natural resources (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10669-022-09872-0

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