ENVIRONMENTAL-POLICY AND SUSTAINABLE ECONOMIC-GROWTH - AN ENDOGENOUS GROWTH PERSPECTIVE

This paper investigates the consequences of environmental policy for w elfare, consumption and production growth in a situation in which envi ronmental quality is initially too low. The natural environment is inc orporated in endogenous growth theory in a way that is consistent with some simple notions from the laws of thermodynamics. Environmental po licy affects growth, both in the long run and in the short run, by aff ecting the productivity of investment and the savings behavior of cons umers. The environment provides necessary inputs to economic productio n and accumulation processes. Hence improvements in environmental qual ity that follow environmental policy may boost the productivity of the environment and growth.