Capital Accumulation, Technological Progress and Environmental Change in a Three-Sector Growth Model

This paper builds a dynamic growth model with wealth accumulation, technological change, and environmental change on the basis of the neoclassical growth theory with an alternative approach to household behavior. The model synthesizes the economic growth mechanism in the neoclassical growth theory, Arrow’s learning-by-doing, and the environmental change in some traditional dynamic models of environmental economics. It describes a dynamic interdependence among wealth accumulation, technological change, and environmental change under perfect competition with environmental taxes. The author simulated the model to demonstrate existence of equilibrium points and motion of the dynamic system. In particular, the author demonstrated effects of changes in the government policy and preference upon both short-run and long-run economic behavior of the system.