Abstract:
This thesis develops and analyzes an economic growth model with environ-
mental quality factor in the production and utility function. We first assume
that the capital share equals to the inverse of intertemporal elasticity of
substitution and solve our model for the balanced growth path. Unique low
growth equilibrium is attained when environmental quality is given less weight
in the utility function. The multiple equilibria exist if environmental quality
is given greater weight in the utility function. These results hold even when
we relax the assumption = and consider fairly general values of capital
share and intertemporal elasticity of substitution. We study the stability and
transitional dynamics of model. We conclude that an economy in which the
environmental quality is given relatively less importance by the agents will be
caught in low growth, high consumption poverty traps which is the case for
developing countries whereas the economies can potentially reach a relatively
low consumption, high growth steady state if they give greater importance to
environmental quality
