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Transition to Green Industry and Recycling in a Heterogeneous-Industry and Endogenous Growth Model

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  • Riku Watanabe

Abstract

This study incorporates two heterogeneous industries into an endogenous growth model within the framework of a circular economy. In the model, industries are classified as either brown or green, and each can transition between states through R&D activities related to innovation and greening. Greening R&D is conducted exclusively by firms in the brown industry and enables the transition to the green industry. We analyze the effects of subsidies for greening R&D and show that such subsidies increases labor allocation to both innovation and greening R&D. As a result, the model yields win-win outcome: economic growth is promoted not only by productivity-driven growth acceleration but also by a decline in the share of brown industries that rely on exhaustible resources, which mitigates the negative impact of resource depletion on growth. These findings suggest that advancing a circular economy can be compatible with sustained economic growth.

Suggested Citation

  • Riku Watanabe, 2025. "Transition to Green Industry and Recycling in a Heterogeneous-Industry and Endogenous Growth Model," ISER Discussion Paper 1286r, Institute of Social and Economic Research, The University of Osaka, revised Aug 2025.
    • Handle: RePEc:dpr:wpaper:1286r
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    File URL: https://www.iser.osaka-u.ac.jp/static/resources/docs/dp/DP1286R.pdf
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