The effect of including the environment in the neoclassical growth model

George Halkos and Iacovos Psarianos

MPRA Paper from University Library of Munich, Germany

Abstract: This study begins with an exposition of basic principles of the theory of Optimal Control as this is used in the development of the theory of Economic Growth. Then, a brief presentation of the Neoclassical Model of Economic Growth follows and two applications are presented. In the first, optimal control techniques are used, in the context of neoclassical growth, to maximize the representative household’s total intertemporal welfare. In the second, the same problem is posed with two additional variables that affect welfare in opposing ways: pollution and abatement expenditures. In both applications, the optimal steady-state conditions are derived. This allows 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: C60 C61 C62 O41 O44 Q56 Q58 (search for similar items in EconPapers)
Date: 2015-11-24
New Economics Papers: this item is included in nep-ene, nep-env, nep-fdg and nep-gro
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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