The Impact of Sustainable Innovation Finance on Achieving Global Climate Goals

Lena Schreiner () and Reinhard Madlener
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Lena Schreiner: E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)

No 3/2023, FCN Working Papers from E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)

Abstract: This paper investigates the impact of financial frictions on sustainable economic growth in the global economy. We present a model of endogenous directed technical change including a public and private financial sector, allowing for an endogenous financing decision in terms of internal and different external financing of technical change. Capturing the dynamics between the ‘global North’, i.e., the developed economies, and the ‘global South’, i.e., the developing economies, we allow for technological development to occur through innovation or imitation and, hence, capturing technology diffusion processes in the global economy. Our findings substantiate the way in which the presence of financing costs and frictions in the financial markets—which are elevated with regards to sustainable innovation and in the developing world—cause the global economy to converge towards a non-sustainable growth path in the absence of policy intervention. This development can be addressed partially, but not fully, by sustainable public investment. However, to steer the economy to a fully sustainable growth path, an additional regulation or incentivization of private investors is necessary. Alternatively, a sufficiently high carbon price can be set. However, other than in the current reality, this carbon price would have to cover a large share of global emissions.

Keywords: Sustainable innovation; sustainable finance; innovation finance; green growth; financing frictions; directed technical change; endogenous innovation (search for similar items in EconPapers)
JEL-codes: N70 O11 O16 O19 O31 O33 O44 Q43 (search for similar items in EconPapers)
Pages: 85 pages
Date: 2023-04-01
New Economics Papers: this item is included in nep-ene, nep-env, nep-fdg and nep-ino
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:fcnwpa:2023_003

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