Directed Technological Change in a Post-Keynesian Ecological Macromodel

Naqvi, A. ORCID: https://orcid.org/0000-0002-0986-6009 & Stockhammer, E. (2018). Directed Technological Change in a Post-Keynesian Ecological Macromodel. Ecological Economics 154 168-188. 10.1016/j.ecolecon.2018.07.008.

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Abstract

This paper presents a post-Keynesian ecological macromodel, which is stock-flow consistent, and incorporates directed technological change. Private and public R&D spending across three competing, yet complementary inputs – Labor, Capital, and Resources – follow a portfolio allocation decision, where inputs with relatively higher growth in costs, see higher R&D investment and productivity gains. Two policy experiments are reported; a market-based Resource tax increase, and a centralized green policy, where public R&D budget is shifted towards Resource-saving technologies. We highlight that in the presence of labor market institutions, which give rise to hysteresis, and limited R&D budgets, a policy of continuous Resource tax growth is needed to induce Resource-saving technological change to achieve a greener economy. This needs to be coupled with planned government spending adjustment to spur demand and boost investment. The findings also suggest that a mix of market-based and centralized policies may be optimal.

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