Department of Economics Discussion Paper 2004-09

The Green Solow Model

William A. Brock University of Wisconsin

and

M. Scott Taylor

University of Calgary

June, 2004

Department of Economics University of Calgary

Calgary, Alberta, Canada T2N 1N4

This paper can be downloaded without charge from http://www.econ.ucalgary.ca/research/research.htm

The Green Solow Model

William A. Brock*

M. Scott Taylor**

Abstract: We demonstrate that a key empirical �nding in environmental

economics - The Environmental Kuznets Curve - and the core model of modern

macroeconomics - the Solow model - are intimately related. Once we amend

the Solow model to incorporate technological progress in abatement, the EKC

is a necessary by product of convergence to a sustainable growth path. Our

amended model, which we dub the "Green Solow", generates an EKC relation-

ship between both the �ow of pollution emissions and income per capita, and

the stock of environmental quality and income per capita. The resulting EKC

may be humped shaped or strictly declining. We explain why current meth-

ods for estimating an EKC are likely to fail whenever they fail to account for

cross-country heterogeneity in either initial conditions or deep parameters. We

then develop an alternative empirical method closely related to tests of income

convergence employed in the macro literature. Preliminary tests of the model�s

predictions are investigated using data from OECD countries.

*Brock:Vilas Professor of Economics, Department of Economics, University

of Wisconsin (wbrock@ssc.wisc.edu);**Taylor, Professor of Economics, Depart-

ment of Economics, University of Wisconsin, Faculty Research Associate Na-

tional Bureau of Economic Research, Cambridge, MA. (staylor@ssc.wisc.edu

and web: www.ssc.wisc.edu/~staylor).

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