Polluting Productions and Sustainable Economic Growth: A Local Stability Analysis

Abstract

The aim of this paper is to analyze the link between natural capital and economic growth, in a Romer-type economy characterized by dirty emissions in the production process, and to examine the conditions under which a sustainable growth, which implies a decreasing level of dirty emissions, might be both feasible and optimal. This work is close to Aghion-Howitt (1998) with some more general specifications, in particular regarding the structure of preferences and the technological sector. We also deeply study the transitional dynamics of this economy towards the steady state, and conclude that a determinate saddle path sustainable equilibrium can be reached even in presence of a long run positive level of polluting emissions, thanks to a growing level of new home-made inventories, without whom some indeterminacy problems are likely to emerge