Stochastic environmental effects, demographic variation, and economic growth

We consider a stochastic environment to study interactions among pollution growth, demographic changes, and economic growth. Drawing on the empirical findings of slow convergence patterns of pollution shocks (viz., with a long-memory), we build an analytical framework where stochastic environmental feedback effects on population changes are reflected upon aggregate economic growth. Long-memory in economic growth, in our model, is shown to arise due to the inherent stochasticity in environmental and demographic system. Empirical results for a set of developed and developing countries generally support our conjecture. Simulation experiment is carried out to lend additional support to this claim.

JEL Classification codes: C13, J11, O47 Key words: Environmental quality, long-memory, demographic dynamics, economic growth

UNU-MERIT Working Papers ISSN 1871-9872