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An Endogenous Growth Model à la Romer with Embodied Energy-Saving Technological Change

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  • Zon, Adriaan van
  • Yetkiner, I. Hakan

    (MERIT)

Abstract

In this paper, we extend the Romer (1990) model in two ways. First, we include energy consumption of intermediates. Secondly, intermediates become heterogeneous due to endogenous energy saving technical change. However, aggregate effective capital is still subject to endogenous technical change of the ‘love of variety’ type, as in the original Romer model. We show that the resulting system can still generate steady state growth, but the growth rate depends negatively on the growth of real energy prices. The reason is that real energy price rises will lower the profitability of using new intermediate goods and hence the profitability of doing research, ceteris paribus. Hence, in this set-up rising real energy prices are not countered by stepping up research, but provide a negative stimulus to R&D instead. We also show that in these circumstances the introduction of an energy tax that is recycled in the form of an R&D subsidy may actually increase growth, while increasing the capital intensity of production at the same time.

Suggested Citation

  • Zon, Adriaan van & Yetkiner, I. Hakan, 2001. "An Endogenous Growth Model à la Romer with Embodied Energy-Saving Technological Change," Research Memorandum 031, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
  • Handle: RePEc:unm:umamer:2001031
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    File URL: https://www.merit.unu.edu/publications/rmpdf/2001/rm2001-031.pdf
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    Cited by:

    1. Vaal, Albert de & Yetkiner, I. Hakan & Zon, Adriaan van, 2002. "The cyclical advancement of drastic technologies," CCSO Working Papers 200217, University of Groningen, CCSO Centre for Economic Research.
    2. Zon, Adriaan van & Kronenberg, Tobias, 2005. "General Purpose Technologies and Energy Policy," Research Memorandum 011, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
    3. Smulders, Sjak & de Nooij, Michiel, 2003. "The impact of energy conservation on technology and economic growth," Resource and Energy Economics, Elsevier, vol. 25(1), pages 59-79, February.

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    Keywords

    economics of technology ;

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