Discussion paper

DP9733 Environmental Policy and Directed Technical Change in a Global Economy: The Dynamic Impact of Unilateral Environmental Policies

This paper builds a two-country (North, South), two-sector (polluting, nonpolluting) trade model with directed technical change, examining whether unilateral environmental policies can ensure sustainable growth. The polluting good is produced with a clean and a dirty input. I show that a temporary Northern policy combining clean research subsidies and a trade tax can ensure sustainable growth but Northern carbon taxes alone cannot. Trade and directed technical change accelerate environmental degradation either under laissez-faire or if the North implements carbon taxes, yet both help reduce environmental degradation under the appropriate unilateral policy. I characterize the optimal unilateral policy analytically and numerically using calibrated simulations.

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Citation

Hémous, D (2013), ‘DP9733 Environmental Policy and Directed Technical Change in a Global Economy: The Dynamic Impact of Unilateral Environmental Policies‘, CEPR Discussion Paper No. 9733. CEPR Press, Paris & London. https://cepr.org/publications/dp9733