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Endogenous growth and environmental policy: are the processes of growth and tertiarization in developed economies reversible?

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Abstract

The starting point for this article is the idea put forward by Gadrey (2008, 2010) that environmental problems and a policy of addressing them by introducing an environmental tax could trigger economic contraction and downscaling and a shrinking of the service sector in developed economies. The purpose of this article is to test these hypotheses using an evolutionary simulation model. To this end, we use a model of endogenous growth and structural change into which an environmental dimension is incorporated. The results of our simulations certainly reveal structural change within service industries but no change in the distribution of employment between services and manufacturing. Furthermore, we show that the environmentally desirable stagnation of labor productivity in the capital goods sector is compatible with a largely positive growth trend in the economy as a whole, with the development of knowledge-intensive business services apparently able partially to offset the stagnation of productivity in the capital goods sector. We conclude by emphasizing the need for environmental innovation in service activities and cast doubt on the long-term effectiveness of an environmental tax in the fight against pollution.

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Notes

  1. Gadrey (2008) does, after all, advance the hypothesis that “many necessary changes in the production (of goods or services) will be accompanied by a reduction in labour productivity, at least as it is currently measured” (p. 13).

  2. As all profit margins in our model are identical, regardless of sector, they are denoted by the same term μ in all sectors.

  3. The model we are proposing comprise four sectors. If \( \bar{\pi}_{\rm it} \), A kt , A jt , A zt are, respectively, labor productivity in the final goods firm i , the capital goods firm k , the final service firm j and the intermediate service firm z and N is the total number of firms, then average macroeconomic productivity at time t is given by:

    $$ \bar{A}_{t}= \dfrac{\sum_{i}\bar{\pi}_{\rm it}+\sum_{k}A_{kt}+\sum_{j}A_{jt}+\sum_{z}A_{zt}}{N} $$
  4. Our firm reviews only half of its capital goods because we take the view that the firm is not rational in its investment decisions.

  5. The machines are delivered at the end of the period.

  6. The machine tools providers produce in just-in-time.

  7. Our knowledge accumulation process is similar to that for material capital, but brings into play a number of random events. A similar approach can be found in Baumol et al. (2007): “business firms’ investment in knowledge creation is analogous to their investment in new equipment that promises to make employees more productive. But unlike investment in a new machine, which has more or less predictable productivity-enhancing consequences, investment in knowledge discovery is fraught with uncertainty” (p. 51).

  8. Variable \( \bar{B}_{\rm it} \) should not be confused with the environmental intensity of the productive process of the firm i . Indeed, \( \Upsilon_{\rm it}=\frac{E_{\rm it}}{Q_{\rm it}^{s}} \) is environmental intensity for firm i , whereas here \( \bar{B}_{\rm it}=\frac{Q_{\rm it}^{s}}{E_{\rm it}} \).

  9. We are assuming that there is a non-linear relationship between the environmental productivity of capital goods and the productivity that these capital goods confer on labor. Such a relationship can be justified by the literature on environmental Kuznets curves (Panayotou 1997).

  10. The values of the filter parameters are those recommended by Baxter and King (1999) and Stock and Watson (1999), namely, k = 12 , lower frequency bound = 8 , upper frequency bound = 32 . In doing so, we must support the implicit assumption that a time period of our model corresponds to an actual quarter.

  11. Gallouj (2002) notes in this regard that “the organizational memory of KIBS firms is heavily dependent on the loyalty of its staff. The loss of certain members of staff produces an effect akin to amnesia or a cognitive haemorrhage” (p. 274).

  12. Dosi and Grazzy (2006) take the view that the long-term trend towards the replacement of human inputs by machinery and other equipment (which is much more efficient but also more polluting) constitutes a technological paradigm in Dosi’s sense of the term (Dosi 1982). Noting that a paradigm shift is an “extraordinary” event (p. 12), these two authors consider it very unlikely that growth will become sustainable in the long term. Similarly, they consider the hypothesis that a tax could lead to a substitution of inputs (which is, as already noted, the basis of Gadrey’s argument Gadrey 2010) to be “a far-fetched idea with little empirical support” (p. 14).

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Correspondence to Faïz Gallouj.

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We thank the two anonymous reviewers for their very helpful comments.

This paper draws on a research carried out within the servPPIN project (European Commision, FP 7).

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Desmarchelier, B., Gallouj, F. Endogenous growth and environmental policy: are the processes of growth and tertiarization in developed economies reversible?. J Evol Econ 23, 831–860 (2013). https://doi.org/10.1007/s00191-012-0292-2

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