Exploring the effect of including the environment in the neoclassical growth model

George Halkos and Iacovos Psarianos
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Iacovos Psarianos: University of Thessaly

Environmental Economics and Policy Studies, 2016, vol. 18, issue 3, No 5, 339-358

Abstract: Abstract This study begins with a brief presentation of the Neoclassical Model of economic growth and continues with the inclusion of two additional variables that affect welfare in opposing ways: pollution and abatement expenditures. The optimal steady-state conditions are derived allowing for a preliminary comparison of the resulting balanced growth paths under the criterion of welfare maximization with and without environmental externalities. Finally, using a balanced panel data of 43 countries and for the time period 1990–2011 we test the validity of including the environment in the neoclassical growth model approximating pollution abatement with the electricity production from renewable sources and pollution with carbon dioxide emissions. With the help of adequate econometric panel data methods we test the validity of the environmental Kuznets curve hypothesis for the full sample, as well as for the OECD and non-OECD countries.

Keywords: Economic growth; Physical capital; Technological; Progress; Environment; Pollution (search for similar items in EconPapers)
JEL-codes: C6 O41 O44 Q56 Q58 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (6)

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DOI: 10.1007/s10018-016-0146-5

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