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Sustainable development: Structural transformation and the consumer demand

Ramon Lopez () and Sang W. Yoon

Structural Change and Economic Dynamics, 2020, vol. 52, issue C, 22-38

Abstract: This paper examines the feasibility of environmentally sustainable growth in a competitive market economy assuming various types of technological changes affecting pollution emissions and ultimately climate change. We consider two final outputs and two factors of production, accounting for both pollution flow and stock effects. If the initial level of pollution emissions satisfies certain boundary conditions, a Pigouvian pollution tax may assure sustainable growth without any further government intervention. This is true even if exogenous technological change is assumed to benefit exclusively the pollution-intensive industries (the “dirty” sector). A consumers’ composition effect (often neglected in the literature), driven by an endogenous change in the relative prices between clean and dirty final goods under an optimal pollution tax, plays a critical role in the structural transformation process to achieve long-run sustainable economic growth.

Keywords: Sustainable development; Consumption flexibility; Technological change; Optimal pollution tax (search for similar items in EconPapers)
JEL-codes: O44 Q01 Q56 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.strueco.2019.09.011

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