Directed Technical Change and Economic Growth Effects of Environmental Policy

Abstract

A Schumpeterian growth model is developed to investigate how environmental policy affects economic growth when environmental policy also affects the direction of technical change. In contrast to previous models, production and pollution abatement technologies are embodied in separate intermediate good types. A set of stylized facts related to pollution emission, environmental policy, and pollution abatement expenditures is presented, and it is shown that the developed model is consistent with these stylized facts. It is shown analytically that a tightening of the environmental policy unambiguously directs research efforts toward pollution abatement technologies and away from production technologies. This directed technical change reduces economic growth and pollution emission growth. Simulation results indicate that even large environmental policy reforms have small economic growth effects. However, these economic growth effects have relatively large welfare effects which suggest that static models and exogenous growth models leave out an important welfare effect of environmental policy.

Temporality of environmental policy and its effects on the location and abatement decision

“…This is demonstrated by [33], who study the location decisions of a duopolistic sector when there is the option to adopt abatement technologies. Among their main conclusions, they establish that the regulator should incentivize the adoption of these new technologies, as it reduces the incentive for relocation and has a positive effect on emissions ( [34], [35], [36]) and societal welfare. Based on these results, two fundamental points must be considered.…”

An empirical study on the endogeneity of directed technical change in China

“…Using panel regression analysis, Huang et al (2021) studied the factors influencing biased technical change and found that improving energy efficiency, promoting urbanization, expanding production scale, and optimizing industrial structures effectively promote biased technical change. Recently, many scholars have begun studying the impact of environmental policies on the direction of technical change (Greaker et al, 2018;Kruse-Andersen, 2016;Wang et al, 2020).…”

Testing R&D‐Based Endogenous Growth Models*

“…Figure 2. Productivity measures, Ãt , (MFP, TFP, and GDP per worker) in logs: levels and first differences,1953-2018. Source: BEA (2020a, 2020b, BLS (2020b), andFernald (2014) …”

“…Finally, I would like to thank Mark Boroush from the National Science Foundation for providing insights and data on US R&D expenditures. The present article is a revised version of Kruse‐Andersen (2017) and Kruse‐Andersen (2018, ch. 1).…”