Growth with Deadly Spillovers

58 Pages Posted: 12 Dec 2018

See all articles by Pietro F. Peretto

Pietro F. Peretto

Duke University - Department of Economics; Duke Innovation & Entrepreneurship Initiative

Simone Valente

Norwegian University of Science and Technology (NTNU)

Date Written: December 12, 2018

Abstract

Empirical studies show that pollution is one of the world’s most significant causes of premature death. However, despite its importance macroeconomics still largely neglects this negative externality. To fill the gap, we build a model where productivity growth, emissions, mortality and fertility are all endogenous. Primary production exploits natural resources and generates emissions that increase total deaths. Unlike conventional pollution externalities, deadly spillovers affect the path of economic activity and the associated level of welfare through multiple channels - consumption and fertility choices, labor supply, incentives to innovate. They can also undermine development even for damage elasticities below unity. The reason is that the response of the mortality rate to population change is not only state-dependent but also generates mortality traps - equilibrium paths leading to population implosion. Differently from poverty traps triggered by low income per worker, mortality traps threaten resource-rich economies with low population. Subsidies to primary production reduce long-run population capacity and expand the mortality trap. Discoveries of natural resource endowments bring the economy closer to population implosion and may as well expand the trap.

Keywords: Endogenous Growth, Environmental Externalities, Mortality

JEL Classification: O12, O44, Q56

Suggested Citation

Peretto, Pietro F. and Valente, Simone, Growth with Deadly Spillovers (December 12, 2018). Economic Research Initiatives at Duke (ERID) Working Paper No. 281, Available at SSRN: https://ssrn.com/abstract=3300260 or http://dx.doi.org/10.2139/ssrn.3300260

Pietro F. Peretto (Contact Author)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States
919-660-1807 (Phone)
919-684-8974 (Fax)

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Simone Valente

Norwegian University of Science and Technology (NTNU) ( email )

Department of Economics
NTNU Dragvoll
Trondheim NO-7491
Norway

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