Into the black box of environmental Kuznets curves: Optimal growth and material resource use in two trading countries

Most important environmental problems can be related to materials flows through the economy. Regional and national economies use materials that are either extracted domestically or imported from other regions. Therefore, an analysis of optimal patterns of combined economic development and materials use requires that both trade and environmental aspects are taken into account. A model is presented here that optimises longterm welfare for two regions that trade in virgin and recycled materials as well as consumer goods. The regions differ in one respect, namely with regard to domestic availability of a material resource. Analysis of the model shows, among other things, that the relationship between production and virgin material use can follow an Environmental Kuznets curves or an N-shaped curve. The latter points at ‘‘re-linking’’ of income growth and material resource use. Although trade of material resources and goods increases the carrying capacity of both regions, and in turn their levels of welfare, it can not prevent the re-linking phenomenon. JEL classification: Q30, Q32, R13