University of HelsinkiAbstract. This paper examines per capita pollution in a developing economy by a family-optimization model where fertility is endogenous and wealth increases welfare through status effect. Developing countries have weaker environmental laws and specialize in capital-intensive “dirty” goods. With a significant status effect, gains from trade stimulate investments leading to higher wages so that population growth first increases but then decreases. The opposite changes in labor supply first swell but then curb the production of the capital-intensive dirty good. A typical EKC path appears: per capita pollution increase at the earlier but decrease at the later stages of development.
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