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Accounting for quality: Issues with modeling the impact of R&D on economic growth and carbon emissions in developing economies

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  • Fisher-Vanden, Karen
  • Sue Wing, Ian

Abstract

The literature on climate policy modeling has paid scant attention to the important role that R&D is already playing in industrializing countries such as China, where R&D investments are targeting not only productivity improvements but also enhancements in the quality and variety of products. We focus here on the effects of quality-enhancing innovation on energy use and GHG emissions in developing countries. We construct an analytical model to show that efficiency-improving and quality-enhancing R&D have opposing influences on energy and emission intensities, with the efficiency-improving R&D having an attenuating effect and quality-enhancing R&D having an amplifying effect. We find that the balance of these opposing forces depends on the elasticity of upstream output with respect to efficiency-improving R&D, the elasticity of downstream output with respect to upstream quality-enhancing R&D occurring upstream, and the relative shares of emissions-intensive inputs in the costs of production of upstream versus downstream industries. We employ a computable general equilibrium (CGE) simulation of the Chinese economy to illustrate the difficulties that arise in incorporating these results into models for climate policy analysis, and we offer a simple remedy.

Suggested Citation

  • Fisher-Vanden, Karen & Sue Wing, Ian, 2008. "Accounting for quality: Issues with modeling the impact of R&D on economic growth and carbon emissions in developing economies," Energy Economics, Elsevier, vol. 30(6), pages 2771-2784, November.
  • Handle: RePEc:eee:eneeco:v:30:y:2008:i:6:p:2771-2784
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    References listed on IDEAS

    as
    1. Sue Wing, Ian, 2006. "Representing induced technological change in models for climate policy analysis," Energy Economics, Elsevier, vol. 28(5-6), pages 539-562, November.
    2. Karen Fisher-Vanden, 2003. "The Effect of Market Reforms on Structural Change: Implications for Energy Use and Carbon Emissions in China," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 27-62.
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