Exploring the effect of including the environment in the neoclassical growth model. Environental Economics and Policy Studies

Exploring the effect of including the environment in the neoclassical growth model. Environmental Economics and Policy Studies 18(3): 339-358 DOI 10.1007/s10018-016-0146-5 (SCOPUS, EconLit, ISI Listed). In common with Iacovos Psarianos (2016).

This study begins with a brief presentation of the Neoclassical Model of economic growth and continues with the inclusion of two additional variables that affect welfare in opposing ways: pollution and abatement expenditures. The optimal steady-state  conditions  are  derived  allowing  for  a  preliminary  comparison  of  the resulting  balanced  growth  paths under  the criterion of welfare  maximization with and without environmental externalities. Finally, using a balanced panel data of 43 countries and for the time period 1990–2011 we test the validity of including the environment in the neoclassical growth model approximating pollution abatement with  the  electricity  production  from  renewable  sources and  pollution  with  carbon dioxide emissions. With the help of adequate econometric panel data methods we test the validity of the environmental Kuznets curve hypothesis for the full sample, as well as for the OECD and non-OECD countries.