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

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...

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Bibliographic Details
Published in:Energy economics 2008-11, Vol.30 (6), p.2771-2784
Main Authors: Fisher-Vanden, Karen, Sue Wing, Ian
Format: Article
Language:English
Subjects:
Applied general equilibrium models
Carbon emissions
China (People's Republic)
Climate
Climate change
Climate policy
Computable general equilibrium
Cost
Developing countries
Economic development
Economic growth
Economic models
Efficiency
Emissions control
ENERGY CONSERVATION, CONSUMPTION, AND UTILIZATION
Energy economics
Energy efficiency
Environment
Environmental policy
ENVIRONMENTAL SCIENCES
Global climate change
Investment
LDCs
Product quality
Productivity
Quality control
R&D
Research & development
Research and development
Studies
Technological change
Technological change Product quality Carbon emissions Global climate change Computable general equilibrium
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Summary: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.
ISSN:0140-9883
1873-6181
DOI:10.1016/j.eneco.2007.04.002