Environmental Macroeconomics: A Neglected Theme in Environmental Economics

30 Pages Posted: 2 Aug 2017

Date Written: August 1, 2017

Abstract

Environmental issues are usually considered as drivers of allocative distortions within markets. The corrections of such distortions, for example, by recourse to the internalization of externalities, are firmly rooted within the market framework. Therefore the traditional view is that environmental issues fall fairly and squarely within the domain of microeconomics. This paper argues that such a view is flawed. The primary reason is that externalities are never fully internalized. Within any market, there always exist residual externalities, which do accumulate over time. Therefore, the same way as the aggregate of market transactions lead to the definition of national product in macroeconomics, the aggregate of residual externalities lend credence to the recognition of nature as capital and its depreciation. In accordance with this recognition, this paper illustrates the reformulation of long run stabilization frameworks in macroeconomics. The analysis of such reformulated frameworks illustrates different configurations for policy variables as illustrated with reference to South Korea.

Suggested Citation

Thampapillai, Dodo Jesuthason, Environmental Macroeconomics: A Neglected Theme in Environmental Economics (August 1, 2017). Lee Kuan Yew School of Public Policy Research Paper No. 17-15, Available at SSRN: https://ssrn.com/abstract=3011784 or http://dx.doi.org/10.2139/ssrn.3011784

Dodo Jesuthason Thampapillai (Contact Author)

Crawford School of Public Policy ( email )

ANU College of Asia and the Pacific
J.G. Crawford Building, #132, Lennox Crossing
Canberra, Australian Capital Territory 0200
Australia

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