Economic growth under stochastic population and pollution shocks

T.T. Azomahou, T. Mishra, M. Parhi

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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.
Original languageEnglish
Pages (from-to)314-345
Number of pages32
JournalThe Manchester School
Volume83
Issue number3
DOIs
Publication statusPublished - Jun 2015

Keywords

  • ENDOGENOUS GROWTH
  • TIME-SERIES
  • MODEL
  • COINTEGRATION
  • ENVIRONMENT
  • IMPACT
  • STATES

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