The Unilateral Implementation of a Sustainable Growth Path with Directed Technical Change
33 Pages Posted: 18 Feb 2015
Date Written: February 17, 2015
We determine the core characteristics of a climate coalition’s optimal policies in a dynamic two country directed technical change framework. Unilateral policies alter the structure of production and thereby innovation incentives across countries. Whenever feasible, optimal policies implement sustainable growth by directing global innovation to the nonpolluting sector. If nonparticipants drive global innovation, this requires policies relocating clean production to nonparticipants. A calibration exercise suggests that the US or EU alone are too small to implement sustainable growth. A coalition of Annex I countries that signed the Kyoto protocol can implement sustainable growth, yet required tax rates are very high.
Keywords: Sustainable Growth, Technical Change, Innovation
JEL Classification: Q05, Q56
Suggested Citation: Suggested Citation