Environmental Policy in an Endogenous Growth Model with Expanding Variety

Bianco, Dominique (2017): Environmental Policy in an Endogenous Growth Model with Expanding Variety.

Abstract

In this paper, we analyze the long-term impact of an environmental policy on economic growth, pollution and welfare. A standard growth model with horizontal innovation is modified by including pollution which comes from the use of intermediate goods production. Taxation on pollution reduces profits of final good producer as well as intermediate good producers. In this setting, profit gains is explained by a realloaction of labor from intermediate goods sector to R&D sector which enhances innovation, growth and welfare while it reduces pollution.

• Item Type: MPRA Paper
• Language: English
• Keywords: Porter hypothesis, endogenous growth, environmental policy
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O31 - Innovation and Invention: Processes and Incentives; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q58 - Government Policy

References

Acemoglu, D. (2009): Introduction to Modern Economic Growth. Princeton University Press.

Aghion, P., and R. Griffith (2005): Competition and Growth Reconciling Theory and Evidence. The MIT Press.

Aghion, P., and P. Howitt (1992): "A model of growth through creative destruction," Econometrica, 60(2), 323-51.

Bianco, D., and E. Salies (2016): "The strong Porter hypothesis in an endogenous growth model model with satisficing managers," Working Papers 2016-01, OFCE.

Elbasha, E. H., and T. L. Roe (1996): "On endogenous growth: the implications of environmental externalities," Journal of Environmental Economics and Management, 31(2), 240-268.

Gancia, G., and F. Zilibotti (2005): "Horizontal innovation in the theory of growth and development," in Handbook of Economic Growth, ed. by P. Aghion, and S. Durlauf, vol. 1. Elsevier.

Grimaud, A. (1999): "Pollution permits and sustainable growth in a schumpeterian model," Journal of Environmental Economics and Management, 38, 249-266.

Grossman, G. M., and E. Helpman (1991): Innovation and Growth in the Global Economy. The MIT Press.

Hart, R. (2004): "Growth, environment and innovation - a model with vintages and environmentally oriented research," Journal of Environmental Economics and Management, 48, 1078-1098.

Hung, V., P. Chang, and K. Blackburn (1994): "Endogenous growth, environment and R&D," in Trade, Innovation and Environment, ed. by C. Carraro. Kluwer Academic Publishers.

Koesler, S. (2010): "Pollution externalities in a schumpeterian growth model," ZEW Discussion Papers 10-055, ZEW - Zentrum fur Europaische Wirtschaftsforschung / Center for European Economic Research.

Michel, P., and G. Rotillon (1995): "Disutility of pollution and endogenous growth," Environmental & Resource Economics, (6), 279-300.

Nakada, M. (2004): "Does environmental policy necessarily discourage growth?," Journal of Economics, 81(3), 249-275.

Porter, M., and C. van der Linde (1995): "Toward a new conception of the environment-competitiveness relationship," Journal of Economic Perspectives, 9(4), 97-118.

Ricci, F. (2007a): "Channels of transmission of environmental policy to economic growth: a survey of the theory," Ecological Economics, 60(4), 688-699.

Ricci, F. (2007b): "Environmental policy and growth when inputs are differentiated in pollution intensity," Environmental & Resource Economics, 38, 285-310.

Romer, P. (1990): "Endogeneous technological change," Journal of Political Economy, 98(5), s71-s102.

Verdier, T. (1995): "Environmental pollution and endogenous growth: a comparaison between emission taxes and technological standards," in Control and Game-Theoretic Models of the Environment, ed. by C. Carraro, and J. A. Filar, pp. 175-200. Birkhauser.