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Greenhouse Gas Mitigation and Price-driven Growth in a Baumol-Solow-Swan Economy

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  • Burda, Michael
  • Zessner-Spitzenberg, Leopold

Abstract

The existence of an environmental limit changes fundamentally the nature of economic growth. When atmospheric greenhouse gases reach a predetermined absolute threshold, further growth requires a permanently expanding, resource-intensive mitigation effort. We incorporate anthropogenic climate change and its mitigation into the Solow-Swan growth model and show that if the rate of technical progress in mitigation fails to exceed a critical value, the economy behaves as described by Baumol (1967). Economic growth in this regime is then driven by technological progress in mitigation and the dynamics of its relative price. Even in the extreme case that long-run growth of produced output converges to zero, the growth rate of GDP measured in terms of produced goods does not.
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Suggested Citation

  • Burda, Michael & Zessner-Spitzenberg, Leopold, 2023. "Greenhouse Gas Mitigation and Price-driven Growth in a Baumol-Solow-Swan Economy," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277677, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc23:277677
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    References listed on IDEAS

    as
    1. Timo Boppart, 2014. "Structural Change and the Kaldor Facts in a Growth Model With Relative Price Effects and Non‐Gorman Preferences," Econometrica, Econometric Society, vol. 82, pages 2167-2196, November.
    2. Llavador, Humberto & Roemer, John E. & Silvestre, Joaquim, 2011. "“A dynamic analysis of human welfare in a warming planet”," Journal of Public Economics, Elsevier, vol. 95(11), pages 1607-1620.
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    JEL classification:

    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth

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