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Conservation Capital And Sustainable Economic Growth

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  • Ramirez, Donna Theresa J.
  • Khanna, Madhu
  • Zilberman, David

Abstract

This paper develops an endogenous growth model which links pollution to ineffective input-use, which can be reduced through conservation capital investment. It derives the conditions under which individual preferences for environmental quality and private investment in conservation capital can lead to non-decreasing environmental quality and balanced growth in an unregulated and in a regulated regime. In the absence of regulation, balanced growth can lead to improvement in environmental quality as long as the rate of growth is low. The extent to which the growth rate is low depends upon preference for environmental quality, interest and discount rates, productivity of conservation capital, and price of the polluting input. Under an emissions tax regime, sustainable balanced growth requires the interest rate to lie between the amenity value derived by consumers from environmental improvement and the marginal return to the firm due to the regenerative capacity of the environment. This implies that interest rate must be high enough to encourage consumers to forego consumption but low enough to constrain the productivity of conservation capital and restrain usage of the polluting input. The emissions tax is also shown to be equivalent to a pollution permit system or to a two-instrument scheme composed of a tax on polluting input and a subsidy on conservation capital investment.

Suggested Citation

  • Ramirez, Donna Theresa J. & Khanna, Madhu & Zilberman, David, 2002. "Conservation Capital And Sustainable Economic Growth," 2002 Annual meeting, July 28-31, Long Beach, CA 19846, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  • Handle: RePEc:ags:aaea02:19846
    DOI: 10.22004/ag.econ.19846
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    2. Psaltopoulos, Demetris & Balamou, Eudokia & Skuras, Dimitris & Ratinger, Tomas & Sieber, Stefan, 2011. "Modelling the impacts of CAP Pillar 1 and 2 measures on local economies in Europe: Testing a case study-based CGE-model approach," Journal of Policy Modeling, Elsevier, vol. 33(1), pages 53-69, January.
    3. Sasmal, Joydeb, 2014. "Foodgrains Production in India – How Serious is the Shortage of Water Supply for Future Growth?," Indian Journal of Agricultural Economics, Indian Society of Agricultural Economics, vol. 69(2), pages 1-14.
    4. Sasmal, Joydeb & Weikard, Hans-Peter, 2013. "Soil Degradation, Policy Intervention and Sustainable Agricultural Growth," Quarterly Journal of International Agriculture, Humboldt-Universitaat zu Berlin, vol. 52(4), pages 1-20, November.
    5. Cheng, Chu-chuan & Chen, Ping-ho & Chu, Hsun & Wang, Yi-chiuan, 2024. "What growth policies protect the environment? A two-engine growth model," Journal of Macroeconomics, Elsevier, vol. 81(C).
    6. Joao R. Faria & Peter Mcadam & Bruno Viscolani, 2023. "Monetary Policy, Neutrality, and the Environment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(7), pages 1889-1906, October.
    7. Xie, Chengyuan & Jin, Xiaotong, 2023. "The role of digitalization, sustainable environment, natural resources and political globalization towards economic well-being in China, Japan and South Korea," Resources Policy, Elsevier, vol. 83(C).

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