Endogenous Technological Change Adapted to the CGE Framework

Jan Witajewski-Baltvilks

Journal of Global Economic Analysis, 2025, vol. 10, issue 1, 106-174

Abstract: We introduce endogenous technological change in a multi-sector recursive dynamic Computable General Equilibrium (CGE) model. We consider the optimization problem faced by technology firms in choosing the optimal level of R&D intensity given market conditions. R&D intensity determines the number of innovations and the speed of technological change in each sector. In addition, firms can choose the direction of technological change; for instance, when designing, they may opt for less energy-intensive but more capital-intensive production when the price of energy increases. We also differentiate between local innovations whose outcomes are constrained by the global technology frontier and innovations that transcend this frontier. The incorporation of endogenous technological change has a significant impact on policy simulations. Once it is considered, the model predicts that climate policy (in the form of a carbon tax) has a significantly larger impact on emissions in the long-run than in the short run. Finally, we demonstrate how intertemporal knowledge spillovers lead to path dependency. The introduction of a carbon tax at an early stage induces early low-carbon R&D and early know-how accumulation, which in turn leads to higher productivity in low-carbon sectors and lower long-run costs of decarbonization when compared to the scenario of postponed carbon tax.

Keywords: Endogenous growth; Directed technological change; Inertia; Path dependency; Climate policy (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://jgea.org/ojs/index.php/jgea/article/view/269/259 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gta:jnlgea:v:10:y:2025:i:1:p:106-174

DOI: 10.21642/JGEA.100103AF

Access Statistics for this article

More articles in Journal of Global Economic Analysis from Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University Contact information at EDIRC.
Bibliographic data for series maintained by Jeremy Douglas ().