Growth with Deadly Spillovers
58 Pages Posted: 12 Dec 2018
Date Written: December 12, 2018
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: Suggested Citation