Events

Mr. Wei Xiang
Ph.D. Candidate in Economics
Yale University

How effective are local environmental policies in fostering clean technology in a globalized
world? To address this question, I develop a dynamic general equilibrium semi-endogenous
growth model of the world economy. I focus on endogenous innovation in both clean and
dirty technologies, as well as the choice of production locations for firms specializing in different
technologies. Local environmental policies lead to the relocation of dirty production
in the short run. Endogenous innovation in clean technology that results from such policies
enhances the country’s technological comparative advantage in clean technology, ultimately
leading to the deployment of clean technology in foreign production locations in the long run.
Counterfactual analysis shows that if both the US and EU countries increase the stringency of
their environmental policies to the level of the most stringent EU country, global CO2 emissions
will decrease by 4.7 percent. The welfare implications are asymmetric across countries:
in the steady state, the consumption-equivalent welfare gains are almost twice as large for EU
countries as for the US.