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The Growth-Environment Trade-off: Horizontal vs Vertical Innovations

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Author Info

  • Andre'' Grimaud

    (GREMAQ and IDEI, Universite' de Toulouse 1)

  • Francesco Ricci

    (GREMAQ, Universite' de Toulouse 1)

Abstract

This paper explores the trade-off between economic growth and environmental quality along two paradigms of endogenous growth theory: variety expansion (HIP) and quality improvements (VIP). We compare the policies that match the decentralised economies' paths with the optimal "strong sustainable" growth path, characterised by growth in consumption and improvements in environmental quality. Three policy tools are employed: subsidies to monopolists and R&D, and taxes on emissions. The latter is increasing at the optimum, to keep the weight of tax revenues over output constant. All policy tools equal, the growth rate is higher in the VIP than in the HIP. The optimal subsidy to R&D is therefore greater and the cumulative loss in output smaller under HIP than the VIP.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 1999.34.

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Date of creation: Mar 1999
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Handle: RePEc:fem:femwpa:1999.34

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Related research

Keywords: Pollution; Endogenous Growth; Sustainable Development;

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References

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  1. Aghion, P. & Howitt, P., 1990. "A Model Of Growth Through Creative Destruction," DELTA Working Papers 90-12, DELTA (Ecole normale supérieure).
  2. Elbasha, Elamin H. & Roe, Terry L., 1996. "On Endogenous Growth: The Implications of Environmental Externalities," Journal of Environmental Economics and Management, Elsevier, vol. 31(2), pages 240-268, September.
  3. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October.
  4. Sjak Smulders, 1995. "Entropy, environment, and endogenous economic growth," International Tax and Public Finance, Springer, vol. 2(2), pages 319-340, August.
  5. Byrne, Margaret M., 1997. "Is growth a dirty word? Pollution, abatement and endogenous growth," Journal of Development Economics, Elsevier, vol. 54(2), pages 261-284, December.
  6. Stokey, Nancy L, 1998. "Are There Limits to Growth?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(1), pages 1-31, February.
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Cited by:
  1. Ricci, Francesco, 2007. "Channels of transmission of environmental policy to economic growth: A survey of the theory," Ecological Economics, Elsevier, vol. 60(4), pages 688-699, February.
  2. Francesco Ricci, 2007. "Environmental policy and growth when inputs are differentiated in pollution intensity," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 38(3), pages 285-310, November.
  3. Dagmar Nelissen & Till Requate, 2007. "Pollution-reducing and resource-saving technological progress," International Journal of Agricultural Resources, Governance and Ecology, Inderscience Enterprises Ltd, vol. 6(1), pages 5-44, January.

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