Income and environmental R&D: empirical evidence from OECD countries

Abstract

This paper extends previous empirical studies of the environmental Kuznets curve by examining the role of rising incomes in promoting development of new technologies directed toward environmental improvements. The main result, based on an analysis of data from 19 OECD countries for the period 1980–94, shows that the income elasticity of public research and development funding for environmental protection is positive, and may be close to unity. This finding suggests that emissions of at least some pollutants may decline with income after a threshold level of income is reached. However, this should be interpreted cautiously in light of: (1) the small size of public research and development funding relative to overall spending on environmental protection, (2) the ability of a country to substitute between public and private research and development expenditures, as well as among alternative policy instruments, and (3) the possibility that public research and development funding may be a form of industrial subsidy in some countries.