Environmental pollution in a growing economy with endogenous structural change

In this paper we study the impact of environmental pollution in an endogenous growth model that allows for structural change. The model is based on doublydifffferentiated R&D where newer, less polluting technologies gradually replace older ones. The analysis shows that the presence of environmental externalities stimulates structural change but reduces the growth rate of the economy. Further, comparing the models with and without structural change demonstrates that the latter implies stronger environmental damages and, consequently, a lower growth rate than the ffirst one. Finally, levying a tax on the polluting output speeds up structural change, thus, reducing environmental pollution and spurring economic growth. This can give new support for the double dividend hypothesis.