The dynamics of wealth, environment and land value in a three-sector growth model

Abstract

This study builds a three-sector growth model with endogenous wealth accumulation and environmental change. It deals with dynamics of land value and rent in tandem with economic growth and economic structural change. The economy consists of industrial, agricultural and environmental sectors. The land is used by the agricultural sector and for providing housing services. The model is based on the neoclassical growth theory and Ricardian theory. The household’s decision is modeled with analternative approach proposed by Zhang (1993). After building the model, we simulatethe motion of the economy. We demonstrate that the economic system has a unique, stable, steady state. We also conduct comparative dynamic analysis. We demonstrate how exogenous changes in the environmental sector’s productivity, the population and the tax rates affect the consumption level of the industrial goods, the outputlevel of the industrial sector, the rent income, the consumption of housing during transitory processes and in long-term equilibrium