Environmental quality and pollution-augmenting technological change in a two-sector endogenous growth model

Abstract

This paper explores the link between environmental quality and economic growth in an endogenous growth model that incorporates pollution-augmenting technological change. It examines the conditions under which sustainable growth is both feasible and optimal. We explore also how the government should intervene to ensure the optimal levels of natural and knowledge capital, which share a public-goods character. We establish the conditions for a more ambitious environmental policy to raise long-run growth.