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PKSG Working Paper Series

Working Paper PKWP1714

Directed technological change in a post-Keynesian ecological macromodel

October 2017

Asjad Naqvi, Engelbert Stockhammer

This paper presents a post-Keynesian ecological macro model that combines three strands of literature: the directed technological change mechanism developed in mainstream endogenous growth theory models, the ecological economic literature which highlights the role of green innovation and material flows, and the post-Keynesian school which provides a framework to deal with the demand side of the economy, financial flows, and inter- and intra-sectoral behavioral interactions. The model is stock-flow consistent and introduces research and development (R&D) as a component of GDP funded by private firm investment and public expenditure. The economy uses three complimentary inputs – Labor, Capital, and (non-renewable) Resources. Input productivities depend on R&D expenditures, which are determined by relative changes in their respective prices. Two policy experiments are tested; a Resource tax increase, and an increase in the share of public R&D on Resources. Model results show that policy instruments that are continually increased over a long-time horizon have better chances of achieving a "green" transition than one-off climate policy shocks to the system, that primarily have a short-run effect.

Keywords: directed technological change, research and development, green transition, ecological economics, post-Keynesian economics, stock-flow consistency

JEL classification: E12: General Aggregative Models: Keynes; Keynesian; Post-Keynesian O33: Technological Change: Choices and Consequences; Diffusion Processes Q57: Ecological Economics: Ecosystem Services; Biodiversity Conservation; Bioeconomics; Industrial Ecology

Download: Working Paper PKWP1714