THE SOLOW-SWAN MODEL OF ECONOMIC GROWTH APPLIED TO POLLUTION AND ITS RECYCLING

Abstract

The present work combines the Solow-Swan model of economic growth with the generation and absorption of pollution. Our starting point is the assumption that production relies not only on labor and capital, but also on the raw materials available in the economy. The incorporation of the raw materials renders the model more real while maintaining typical assumptions. On the other hand, pollution is a by-product of production processes and its reduction is a consequence of nature’s ability to absorb pollutants from the environment. Upon considering the recycling of the contamination in the traditional model of economic growth Solow-Swan, the long-term impact is reflected in the obtainment of a higher level of capital, as a result of the increased availability of raw materials and of the reduction of pollution on account of the recycling of the wastes generated in the production process. This occurs because, even if the savings rate in the economy remains steady, the recycling causes an upward shift in the production function whose impact is similar to that of technological change. As a result of this the capital per cápita increases in the stationary phase, and the level of pollution diminishes because recycling helps nature absorb it.