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| Title: | On Endogenous Growth: The Implications of Environmental Externalities |
| Authors: | Elbasha, Elamin H.
Roe, Terry |
| JEL Codes: | F11
O31
O41
Q20 |
| Issue Date: | 1995 |
| Series/Report no.: | Bulletin 95-1 |
| Abstract: | This paper uses an endogenous growth model to examine the interaction between trade, economic
growth, and the environment. We find that whether trade enhances or retards growth depends on the
relation between factor intensities of exportable, importable, and R&D and the relative abundance
of the factor R&D uses more intensively. Depending on the intertemporal elasticity of substitution,
the long-run rate of economic growth changes with environmental externalities. Concerns about the
environment can explain a significant part of cross-country difference in growth rates. For the
empirically reported range of the elasticity of intertemporal substitution, countries which care more
about the environment grow faster. The effects of trade on the environment and welfare depend on
the elasticities of supply for the two traded goods, the terms of trade effect on growth, and pollution
intensities. The decentralized and Pareto optimal growth rates are, in general, different. The market
growth rate is bigger than the optimal rate the larger the degree of monopoly power in the innovation
sector and the stronger the effects of environmental externalities. The policy implications of this
divergence are discussed. We also consider numerical exercises to broaden the insights from the
analytical results and allow for incorporating pollution abatement |
| URI: | http://purl.umn.edu/7493 |
| Institution/Association: | University of Minnesota>Economic Development Center>Bulletins |
| Total Pages: | 41 |
| Language: | English |
| Collections: | Bulletins
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| edc95-01.pdf | 1719Kb | PDF | View/Open |
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