Endogenous technology as an Environmental Kuznets Curve driving force: An impact assessment

The Grossman’s Environmental Kuznets Curve (EKC) factors decomposition (1995) explains that the EKC driving forces could be summarized in a scale effect, a green technological effect and a composition effect. Whereas the scale effect increases pollution because of the growth of economic activity, environmental innovation and the transition of the economic structure towards fossil free production would decrease emissions. In this theory, EKC factors work independently and a bell shaped relationship could arise only when the latter two effects overcome the former. In this paper we show by an optimal growth climate change model that if endogenous technological change generates synergies between output enhancing and green innovation, growth could be reconciled to environmental sustainability. The traditional empirical decomposition analyses could lead to a rigid interpretation of the EKC determinants.