Working Paper: CEPR ID: DP9733
Authors: David Hemous
Abstract: 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.
Keywords: climate change; directed technical change; environment; innovation; trade; unilateral policy
JEL Codes: F18; F42; F43; O32; O33; O41; Q54; Q55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unilateral positive carbon taxes (H23) | failure to ensure sustainable growth (O44) |
| innovation responses of non-intervening countries (O36) | acceleration of environmental degradation (Q53) |
| temporary northern policy (clean research subsidies + trade tax) (H23) | sustainable growth (O44) |
| absence of cooperation from the south (F51) | sustainable growth (O44) |
| trade and directed technical change (O49) | acceleration of environmental degradation (Q53) |
| absence of policy interventions (F68) | environmental degradation (Q53) |
| temporary industrial policy (clean research subsidies + trade tax) (O25) | sustainable growth (O44) |