Evaluating Optimal Path to Economic Growth, Pollution and Capital Accumulation: A Dynamic System Model Approach

The conflict between the increase in production welfare and the decrease in welfare due to negative environmental externalities has called into question the idea of maximizing welfare as a result of increased production and has provided the ground for further studies. The purpose of the present study is to evaluate the pathways of economic growth when pollution externality is produced by using of a dynamic system model. The model assumes that some of the income will be expenditure to reduce pollution. The positive effect of utility and the negative effect of pollution are reflected in the welfare function. In the present study, the trend of variables over a period of 50 years is examined. The simulation results show that with increasing investment in improving environmental quality to reduce pollution, pollution and the present value of pollution damage increases and the present value of utility and accumulated welfare decreases. Therefore, policymakers should pay particular attention to environmental pollution and their environmental damages and increase the rate of investment in environmental pollution control. Because the rate of increase in pollution is higher than the rate of increase in investment in pollution control.