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Pollution, Endogenous Capital Depreciation, and Growth Dynamics

Verónica Acurio Vásconez, David Desmarchelier and Romain Restout

Working Papers of BETA from Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg

Abstract: This paper documents a positive and significant relationship between carbon dioxide emissions and capital depreciation rate for a large sample covering more than 80 countries in recent decades. Using this result, we develop a simple Solow model with an AK production function in which a pollution externality, viewed as a stock, increases the capital depreciation rate. In the long run, it appears that whatever the magnitude of the pollution effect on capital depreciation, there is no room for endogenous growth despite the AK technology. Moreover, we observe that a sufficiently sensitive capital depreciation rate to pollution can lead to the emergence of a limit cycle near the steady state (i.e., a Hopf bifurcation), indicating that the relationship empirically documented within this paper acts as a destabilizing force for the economy.

Keywords: Endogenous Capital Depreciation; Growth Model; Pollution. (search for similar items in EconPapers)
JEL-codes: E22 O41 O44 Q56 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-ene, nep-env and nep-gro
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Persistent link: https://EconPapers.repec.org/RePEc:ulp:sbbeta:2024-01

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