Economic Growth and the Environment: Matching the Stylized Facts

M. Scott Taylor, University of Calgary
William A. Brock

Abstract

The relationship between economic growth and the environment is not well understood: we have only a limited understanding of the basic science involved and very little data. Because of these difficulties it is especially important to develop a series of relatively simple theoretical models that generate stark predictions. This paper develops a simple endogenous growth model that matches the three most salient features of the growth and environment data. In addition to matching the facts it provides two new hypotheses: a set of predictions linking the path of environmental quality to pollutant characteristics (stocks vs. flows; toxics vs. irritants) and a novel cross-country prediction we dub the Environmental Catch-up Hypothesis.