There is considerable debate regarding the
potential for substitution to ameliorate the effects
of environmental degradation. Some economists
argue that the microeconomic phenomenon of
substitution can be extrapolated to the macroeconomy
so that capital and/or labor can replace
environmental goods and services (Solow, 1978).
If such substitution is possible, environmental
degradation has little or no effect on the long-run
growth path of an economic system. Other
economists argue that the substitution of capital
and labor for environmental goods and services at
the microeconomic level cannot be extrapolated
to the macroeconomic level because of the physical
interdependence among factors of production (Cleveland et al., 1984; Kaufmann, 1992). If substitution
is not possible at the level of the macroeconomy,
environmental degradation has a significant
effect on the long-run growth path of an
economy