Economic Growth and the Diffusion of Clean Technologies: Explaining Environmental Kuznets Curves∗

Production often causes pollution as a by-product. Once environmental degra-dation becomes too severe, regulation is introduced by which society forces the economy to make a transition to cleaner production processes. We model this transition as a change in “general purpose technology ” and investigate how it interferes with economic growth driven by quality-improvements. The model gives an explanation for the inverted U-shaped pollution-income relation found in empirical research for many pollutants (Environmental Kuznets Curve). We provide an analytical foundation for the claim that the rise and decline of pol-lution can be explained by policy-induced technology shifts and intrasectoral changes