Environmental Quality, Environmental Protection and Technology Adoption

Several empirical studies support the environmental Kuznets curve hypothesis (EKC) for some pollutants – as income increases pollution increases, reaches a peak and eventually starts to decrease. Despite relying mostly on cross-sectional data for different countries, these studies tend to interpret the EKC from a time-series perspective: the EKC is a by-product of economic growth. This paper formally puts forth a qualification to the common interpretation that the EKC is a by-product of economic growth by investigating how barriers to technology adoption affect environmental quality in different countries. Barriers to technology adop-tion account for much of the variation in total factor productivity (TFP) and income across countries, and this paper investigates the effect of these barriers on the environment and the relationship between development and environmental quality. It does so by performing com-parative statics on the steady state of a dynamic economy, thus analyzing the effect of changes of the economy’s TFP on environmental quality. The model also enables investigation of the effect of barriers to technology adoption on pollution rates and environmental protection ex-penditures. (JEL O13, Q20