Pollution-induced poverty traps via Hopf bifurcation in a minimal integrated economic-environment model

Abstract

Abstract In this paper we present a minimal integrated environment-economic growth model. The accumulations of capital and pollution are connected by reciprocal feedbacks. Pollution is an undesirable but inevitable by-product of production, whose efficiency is hindered by pollution. The nexus between pollution and production is embodied in a damage function. The evolution of capital is enriched by the specific technology adopted here, an S -shaped production function. The model dynamics is represented by a couple of nonlinear differential equations, whose long run behavior gives rise to multiple stationary points. A global analysis underlines the importance of a meditated choice of the relevant policy parameters. Pollution induced poverty traps emerge for low level of saving ratio and share of abated emission. Periodic behaviour of the economic and environmental variables represents an early signal of the imminent risk of being trapped in an unsatisfactory level of economic performance. Numerical examples corroborate the theoretical results of the paper.