Growth, Environmental Policy and Structural Change in a Small-Open Economy

Abstract

This paper proposes a dynamic small-open growth model with wealth accumulation and environmental change on the basis of the neoclassical growth theory with an alternative approach to household behavior. The model synthesizes the economic growth mechanism in the neoclassical growth theory and the environmental change in some traditional dynamic models of environmental economics. It describes a dynamic interdependence among wealth accumulation, environmental change and preferences under perfect competition with environmental taxes. We simulate the model to demonstrate the existence of equilibrium points and the motion of the dynamic system. In particular, we demonstrate effects of changes in the government policy and preferences upon both short-run and long-run economic behavior of the system.