Environment, Effective Demand, and Cyclical Growth in Surplus Labor Economies

Abstract

The study presents a simple extension of a Harrodian model, that explores, the relationship between the environment and economic growth in a hypothetical dual low-income economy with relatively low levels of environmental quality. It is supposed that the rise in effective demand increases the flow of negative externalities on the environment, which, in turn, would affect output expansion negatively in the capitalist sector through the occurrence of environmental adjustment costs. From such conflictual dynamics, the model shows that perpetual vicious circles may characterize the pattern of fluctuations in economic activity in this economy. JEL codes : O11, O44, Q50