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Environmental quality along the process of economic growth: a theoretical reappraisal

Author

Listed:
  • Maxime Menuet

    (IPAG Business School
    University Côte d’Azur Sophia Antipolis)

  • Alexandru Minea

    (University Clermont Auvergne and University of Orléans
    University of Bucharest
    Carleton University)

  • Patrick Villieu

    (University of Orléans)

  • Anastasios Xepapadeas

    (Athens University of Economics and Business
    University of Bologna)

Abstract

This paper studies the dual interaction between economic growth and environmental quality in an endogenous growth model. We exhibit multiple equilibria and complex local and global dynamics, resulting in potential indeterminacy, hysteresis effects, or long-lasting growth and environmental cycles. From a policy perspective, we reveal that changes in the environmental policy should be handled with care, as they may generate aggregate instability or condemn the economy to an environmental poverty trap associated with a possible irreversibility of environmental degradation. Lastly, our analysis provides a reassessment of pollution taxes, which are found to improve long-run economic growth when the model is well-determined, but reduce it in the presence of indeterminacy.

Suggested Citation

  • Maxime Menuet & Alexandru Minea & Patrick Villieu & Anastasios Xepapadeas, 2024. "Environmental quality along the process of economic growth: a theoretical reappraisal," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 77(4), pages 1219-1258, June.
    • Handle: RePEc:spr:joecth:v:77:y:2024:i:4:d:10.1007_s00199-023-01520-1
    DOI: 10.1007/s00199-023-01520-1
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    Keywords

    Economic growth; Environmental quality; Pollution; Poverty traps; Endogenous cycles; Pollution taxes;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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