China's Pursuit of Environmentally Sustainable Development: Harnessing the New Engine of Technological Innovation

37 Pages Posted: 21 Mar 2016 Last revised: 22 Mar 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

Multiple version iconThere are 2 versions of this paper

Date Written: March 21, 2016

Abstract

Whether China continues its business-as-usual investment-driven, environment-polluting growth pattern or adopts an investment and innovation-driven, environmentally sustainable development holds important implications for both national and global environmental governance. Building on a Ramsey-Cass-Koopmans growth model that features endogenous technological change induced by R&D and knowledge stock accumulation, this paper presents an exposition, both analytically and numerically, of the mechanism underlining China’s economic transition from an investment-driven, pollution-intensive to an investment and innovation-driven, environmentally sustainable growth path. We show that if R&D technological innovation is incorporated into China’s growth mechanism, then at some tipping point in time when marginal welfare gain of R&D for knowledge accumulation becomes equalized with that of investment for physical asset deployment, China’s economy will launch capital investment and R&D simultaneously and make a transition to a sustainable growth path along which consumption, capital investment, and R&D have a balanced share of 5:4:1, consumption, capital stock, and knowledge stock all grow at a rate of 4.9%, and environmental quality improves at a rate of 2.5%. In contrast, if R&D technological innovation is not harnessed as a new growth engine, then China’s economy will follow its business-as-usual investment-driven growth path along which standalone accumulation of dirty physical capital stock will lead to an more than 200-fold increase in environmental pollution.

Keywords: Endogenous Technological Change, Sustainable Development, Economic Growth Model, China’s Economic Transition

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

Suggested Citation

Jin, Wei and Zhang, ZhongXiang, China's Pursuit of Environmentally Sustainable Development: Harnessing the New Engine of Technological Innovation (March 21, 2016). FEEM Working Paper No. 24.2016. Available at SSRN: https://ssrn.com/abstract=2752361 or http://dx.doi.org/10.2139/ssrn.2752361

Wei Jin

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

Kensington
High St
Sydney, NSW 2052
Australia

ZhongXiang Zhang (Contact Author)

Tianjin University - Ma Yinchu School of Economics ( email )

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

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