Environmental Policy and Directed Technical Change in a Global Economy: The Dynamic Impact of Unilateral Environmental Policies

76 Pages Posted: 5 Dec 2012

Multiple version iconThere are 2 versions of this paper

Date Written: December 4, 2012

Abstract

This paper builds a two-country (North, South), two-sector (polluting, nonpolluting) trade model with directed technical change, examining whether unilateral environmental policies can ensure sustainable growth. The polluting good is produced with a clean and a dirty input. A temporary Northern policy combining clean research subsidies and a trade tax can ensure sustainable growth but Northern carbon taxes alone cannot. Trade and directed technical change accelerate environmental degradation either under laissez-faire, or if the North implements carbon taxes, yet both help reduce environmental degradation under the appropriate unilateral policy. I characterize the optimal unilateral policy analytically and numerically using calibrated simulations.

Keywords: Climate Change, Environment, Directed Technical Change, Innovation,Trade, Unilateral Policy

JEL Classification: F18, F42, F43, O32, O33, O41, Q54, Q55

Suggested Citation

Hemous, David, Environmental Policy and Directed Technical Change in a Global Economy: The Dynamic Impact of Unilateral Environmental Policies (December 4, 2012). INSEAD Working Paper No. 2012/123/EPS, Available at SSRN: https://ssrn.com/abstract=2184825 or http://dx.doi.org/10.2139/ssrn.2184825

David Hemous (Contact Author)

University of Zürich ( email )

Zürich
Switzerland

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