The Environmental Kuznets Curve and the Structural Change Hypothesis

Abstract

We provide a very simple macroeconomic investigation of the role that structural changes might play in generating inverted U-shaped income-pollution relationships. Differently from previous research which mainly focuses on empirical, static or general equilibrium models, we develop a standard balanced growth path (BGP) analysis. We show that along the BGP equilibrium an inverted U-shaped income-pollution relationship may occur as a response to structural changes, but whether this is the case or not it will crucially depend upon the magnitude of a production externality parameter. Moreover, we show that the negative relationship between income and pollution can only be a transitory phenomenon, and in the long run pollution will increase as income rises, generating overall an N-shaped pattern. Abstract We provide a very simple macroeconomic investigation of the role that structural changes might play in generating inverted U-shaped income-pollution relationships. Differently from previous research which mainly focuses on empirical, static or general equilibrium models, we develop a standard balanced growth path (BGP) analysis. We show that along the BGP equilibrium an inverted U-shaped income-pollution relationship may occur as a response to structural changes, but whether this is the case or not it will crucially depend upon the magnitude of a production externality parameter. Moreover, we show that the negative relationship between income and pollution can only be a transitory phenomenon, and in the long run pollution will increase as income rises, generating overall an N-shaped pattern.Keywords Environmental Kuznets curve · Economic growth · Structural changeWe are grateful to Baran Doda and Andrew John for insightful discussions. We also wish to thank the participants to the WCERE 2014 (Istanbul, Turkey), WAMS 2014 (Melbourne, Australia) and JCU seminar for helpful comments and suggestions. We are indebted to two anonymous referees for their constructive comments helping us to substantially improve our paper.

Fractal attractors and singular invariant measures in two-sector growth models with random factor shares

“…for all n ≥ 1, so that the last term turns out to be nonnegative: β n E 0 u x x * n , x * n+1 , z n · x n ≥ 0. Therefore, taking the limit as n → ∞ in both sides and using the transversality condition (12) in the first term of the last line, we have lim n→∞ H (n) ≥ 0, and the proof is complete.…”

“…To the best of our knowledge, the possibility of exogenous shocks on factor shares thus far have been considered only in the onesector growth model by Mirman and Zilcha (1975), which has recently been extended to the case of learning by Mirman et al (2016). Nonetheless, it is an interesting generalization of the traditional setup both from the economic and mathematical point of view; indeed, variable factor shares may describe the change in the structure of economic activities which we have observed in industrialized economies over the last decades (Nickell et al, 2008;Marsiglio et al, 2016), and also imply that the optimal economic dynamics may be characterized by an IFS with variable coefficients which makes the analysis of convergence and invariant probability properties not trivial at all. In order to look at this in the simplest possible setup we build on the model discussed in La Torre et al (2011) in which endogenous growth is ruled out (see La Torre et al, 2015, for a discussion of how results may differ in a framework with endogenous growth), and show that through an appropriate log-transformation the optimal nonlinear dynamic system can be converted into a topologically equivalent linear IFS, although such a transformation requires us to impose a substantial number of restrictions on the model's parameters.…”

On the economic growth and environmental trade-off: a multi-objective analysis

“…The first condition (15) allows for inequality (8) to hold for the optimal dynamics defined by (22) and (23), that is, it guarantees a range for the technology level z t sufficiently large so that p t+1 ≤ 1 is always an admissible choice, for any p t+1 arbitrarily close to 1. The RHS in (20), in order to be defined, requires η > δ, which is implied by condition (16) as (1 − β) /2 > 0; that is, in order to have a meaningful solution for problem (3) the pollution stock must decay faster than the pace at which capital depreciates. Note that coefficients ρ 2 , ρ 3 and ρ 6 in (21) are positive, while, under the condition η > δ, coefficients ρ 4 and ρ 5 are negative.…”

“…and by equating the coefficients of the homogeneous terms in both sides (also inside the argument of the first logarithm) we find the values for the coefficients listed in (20) and (21).…”

“…By substituting the coefficients in (20) and (21) in the expressions (42) and (43), after some tedious algebra we obtain the optimal dynamics for capital and pollution as in (22) and (23). By solving the system…”