Quo Vadis? Energy Consumption and Technological Innovation

24 Pages Posted: 13 Feb 2016

See all articles by Wei Jin

Wei Jin

School of Economics, University of New South Wales

ZhongXiang Zhang

Tianjin University - Ma Yinchu School of Economics

Date Written: August 1, 2014

Abstract

Whether China maintains its business-as-usual energy-intensive growth trajectory or changes to a sustainable development alternative has significant implications for global energy and climate governance. This paper is motivated to theoretically examine China’s potential transition from its energy-intensive status quo to an innovation-oriented growth prospect. We develop an economic growth model that incorporates the endogenous mechanism of technological innovation and its interaction with fossil energy use and the environment. We find that from an initial condition with a pristine environment and a small amount of capital installation, the higher dynamic benefits of physical investment will incentivize the investment in physical capital rather than R&D-related innovation. Accumulation of the energy-consuming capital thus leads to an intensive use of fossil energy-an energy-intensive growth pattern. But if the mechanism of R&D-related innovation is introduced into the economy, until the dynamic benefit of R&D is equalized with that of capital investment, the economy embarks on R&D for innovation. As a result, the economy will evolve along an innovation-oriented balanced growth path where consumption, physical capital and technology all grow, fossil energy consumptions decline, and environmental quality improves.

Keywords: Technological Innovation; Energy Consumption; Economic Growth Model

JEL Classification: Q55; Q58; Q43; Q48; O13; O31; O33; O44; F18

Suggested Citation

Jin, Wei and Zhang, ZhongXiang, Quo Vadis? Energy Consumption and Technological Innovation (August 1, 2014). Crawford School of Public Policy, The Australian National University, CCEP Working Paper No. 1412. Available at SSRN: https://ssrn.com/abstract=2731398 or http://dx.doi.org/10.2139/ssrn.2731398

Wei Jin (Contact Author)

School of Economics, University of New South Wales ( email )

Kensington
High St
Sydney, NSW 2052
Australia

ZhongXiang Zhang

Tianjin University - Ma Yinchu School of Economics ( email )

92 Weijin Road, Nankai District
Tianjin 300072
China
+86 22 87370560 (Phone)

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