Working Paper: NBER ID: w10557
Authors: William A. Brock; M. Scott Taylor
Abstract: We demonstrate that a key empirical finding in environmental economics - The Environmental Kuznets Curve - and the core model of modern macroeconomics - the Solow model - are intimately related. Once we amend the Solow model to incorporate technological progress in abatement, the EKC is a necessary by product of convergence to a sustainable growth path. Our amended model, which we dub the Green Solow', generates an EKC relationship between both the flow of pollution emissions and income per capita, and the stock of environmental quality and income per capita. The resulting EKC may be humped shaped or strictly declining. We explain why current methods for estimating an EKC are likely to fail whenever they fail to account for cross-country heterogeneity in either initial conditions or deep parameters. We then develop an alternative empirical method closely related to tests of income convergence employed in the macro literature. Preliminary tests of the model's predictions are investigated using data from OECD countries.
Keywords: No keywords provided
JEL Codes: E1; O0; Q5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Technological progress in pollution abatement (Q52) | Environmental Kuznets Curve (EKC) (O44) |
| Income per capita (D31) | Pollution emissions (Q53) |
| Income per capita (D31) | Stock of environmental quality (Q53) |
| Cross-country heterogeneity in initial conditions (C21) | Environmental Kuznets Curve (EKC) (O44) |
| Deep parameters (C51) | Environmental Kuznets Curve (EKC) (O44) |