Environmental Policy and Directed Technical Change in a Global Economy: The Dynamic Impact of Unilateral Environmental Policies
76 Pages Posted: 5 Dec 2012
Date Written: December 4, 2012
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: Suggested Citation