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On the Effect of Technological Progress on Pollution: a New Distortion in an Endogenous Growth Model

  • Alexandra Ferreira Lopes

    ()

    (Departamento de Economia, ISCTE)

  • Tiago Sequeira e Catarina Roseta Palma

    (Departamento de Gestão e Economia, Universidade da Beira Interior; Departamento de Economia, ISCTE.)

We derive a model of endogenous growth with physical capital, human capital and technological progress through quality-ladders. We introduce welfare-decreasing pollution in the model, which can be reduced through the development of cleaner technologies. From the quantitative analysis of the model we show clear evidence that the new externality from technological progress to pollution considered in this model is sufficiently strong to induce underinvestment in R&D as an outcome of the decentralized equilibrium. An important policy implication of the main result of this article is a justification to subsidize the research in cleaner technologies.

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Paper provided by Universidade da Beira Interior, Departamento de Gestão e Economia (Portugal) in its series Working Papers de Gestão, Economia e Marketing (Management, Economics and Marketing Working Papers) with number td09_2010.

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Length: 29 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:csh:wpecon:td09_2010
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