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Indeterminacy and Pollution Haven Hypothesis in a Dynamic General Equilibrium Model

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  • Akihiko Yanase

Abstract

This paper develops a two-sector dynamic general equilibrium model of a small open economy in which production activities are accompanied by pollution emissions that have a negative effect on welfare. It is shown that the dynamic equilibrium may display indeterminacy (i.e., continuum of dynamic equilibrium paths converging to a common steady state), depending on (i) the relationship between capital intensity and pollution intensity, (ii) the property of households’ discount rate as a function of total pollution, and (iii) the pollution-consumption relationship in instantaneous utility. In addition, the effect of environmental policy on the economy’s comparative advantage and its relation to indeterminacy are examined. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Akihiko Yanase, 2014. "Indeterminacy and Pollution Haven Hypothesis in a Dynamic General Equilibrium Model," Open Economies Review, Springer, vol. 25(5), pages 959-980, November.
    • Handle: RePEc:kap:openec:v:25:y:2014:i:5:p:959-980
    DOI: 10.1007/s11079-014-9316-x
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    More about this item

    Keywords

    Dynamic general equilibrium model; Indeterminacy; Small open economy; Pollution haven hypothesis; F18; F43; O41;
    All these keywords.

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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