Economic Growth under Stochastic Population and Pollution Shocks

Authors

  • Théophile T. Azomahou,

    1. United Nations University (UNU-MERIT)
    2. Maastricht University
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  • Tapas Mishra,

    1. Swansea University
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  • Mamata Parhi

    1. Swansea University
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    • This study has immensely benefited from the comments of two anonymous referees and the editor of the Journal. One referee in particular, suggested many new directions and intuitions which were missing in the earlier version of the paper. We are enormously thankful to him/her. We would also like to thank the conference participants at the European Economic Association, seminar participants at the University of Maastricht and University of Vienna for many helpful suggestions. All error and omissions are solely ours.

Abstract

We study dynamics of interactions among economic growth, population, and environmental quality when stochastic shocks in these systems display long-memory property. We make two important contributions. First, we show that the long-memory persistence in economic growth is determined jointly by the convergence speed of shocks in both environmental quality and population. Second, by simulating a modified Solow-Swan economy we demonstrate that the convergence-speed of shocks in these systems significantly affects the long-run growth trajectory of output. Our empirical examination evince that adjustment of output to long-run equilibrium is very slow, thanks to the slowly dissipating population and pollution shocks.

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