Marzio Galeotti

WITCH - A World Induced Technical Change Hybrid Model

The need for a better understanding of future energy scenarios, of their compatibility with the objective of stabilizing greenhouse gas concentrations, and of their links with climate policy, calls for the development of hybrid models. Hybrid because both the technological detail typical of Bottom Up (BU) models and the long run dynamics typical of Top Down (TD) models are crucially necessary. We present WITCH � World Induced Technical Change Hybrid model�� a neoclassical optimal growth model (TD) with energy input detail (BU). The model endogenously accounts for technological progress, both through learning curves affecting prices of new vintages of capital and through R&D investments. In addition, the model captures the main economic interrelationships between world regions and is designed to analyze the optimal economic and environment policies in each world region as the outcome of a dynamic game. This paper provides a detailed description of the WITCH model, of its baseline, and of the model calibration procedure.

Rockets and Feathers Revisited: an International Comparison on European Gasoline Markets

This paper re-examines the issue of asymmetries in the transmission of shocks to crude oil prices onto the retail price of gasoline. Relative to the previous literature, the distinguishing features of the present paper are - i) use of updated and comparable data to carry out an international comparison of gasoline markets; ii) two-stage modeling of the transmission of oil price shocks to gasoline prices (first refinery stage and second distribution stage), in order to assess possible asymmetries at either one or both stages; iii) use of asymmetric error correction models to distinguish between asymmetries that arise from short-run deviations in input prices and from the speed at which the gasoline price reverts to its long-run level; iv) explicit, possibly asymmetric, role of the exchange rate, as crude oil is paid for in dollars whereas gasoline sells for different sums of national currencies; v) bootstrapping of F tests of asymmetries, in order to overcome the lowpower problem of conventional testing procedures. In contrast to several previous findings, the results generally point to widespread differences in both adjustment speeds and short-run responses when input prices rise or fall.

Richer and Cleaner? A Study on Carbon Dioxide Emissions in Developing Countries

Sole structures for articles of footwear, including athletic footwear, include a sole structure having a relatively soft and lightweight foam midsole component partially covered by at least one more rigid and/or dense cage (protective) component(s) and/or other protective component(s). The sole structures may include a first portion configured to support at least a heel and midfoot area of a wearers foot, and an exposed outer edge of this first portion may include a billows structure that extends continuously from a medical midfoot or forefoot area of the sole structure to a lateral midfoot or forefoot area. This billows structure may include fewer than five billow outer ridges connected by billow interstitial areas located between adjacent billow outer ridges. Billow thickness at a rear end of the first portion may be larger than the thickness at a front end of the first portion.

The Dynamics of Carbon and Energy Intensity in a Model of Endogenous Technical Change

In recent years, a large number of papers have explored different attempts to endogenise technical change in climate models. This recent literature has emphasized that four factors Ð two inputs and two outputs Ð should play a major role when modeling technical change in climate models. The two inputs are R&D investments and Learning by Doing, the two outputs are energy-saving and fuel switching. Indeed, R&D investments and Learning by Doing are the main drivers of a climate-friendly technical change that eventually affect both energy intensity and fuel-mix. In this paper, we present and discuss an extension of the FEEM-RICE model in which these four factors are explicitly accounted for. In our new specification of endogenous technical change, an index of energy technical change depends on both Learning by Researching and Learning by Doing. This index enters the equations defining energy intensity (i.e. the amount of carbon energy required to produce one unit of output) and carbon intensity (i.e. the level of carbonization of primarily used fuels). This new specification is embodied in the RICE 99 integrated assessment climate model and then used to generate a baseline scenario and to analyze the relationship between climate policy and technical change. Sensitivity analysis is performed on different key parameters of the energy module in order to obtain crucial insights into the relative importance of the main channels through which technological changes affects the impact of human activities on climate.

Economic growth, international competitiveness and environmental protection : R & D and innovation strategies with the WARM model

It is often argued that policies designed to protect the environment may harm economic growth. Moreover, if introduced unilaterally by a given country, they may reduce the competitiveness of domestic firms. These arguments are generally based on the assumption that environmental protection has to be achieved through the introduction of emission charges (e.g. a carbon tax). However, three issues need to be raised: first, the tax is not the only policy instrument - and is not the most efficient one - that can be used to reduce polluting emissions; secondly, even when a tax policy is implemented, it is important to assess the feedback effects induced by recycling the tax revenue; thirdly, and most importantly, the role of technical progress cannot be neglected. Therefore, there may exist a policy mix that provides firms with the correct incentives to adopt energy - saving technologies and to invest in environment - friendly R & D. The first two issues have partly been explored both in the theoretical and empirical literature. The third issue, i.e. the role of incentives to technical progress, still lacks adequate quantitative assessment. This is why a new model has been developed which endogenizes technical progress and its effects and feedbacks on economic, energy and environmental variables. Using WARM, an econometric general equilibrium model for the European Union and for each member country, this paper presents simulation results up to 2015 of the effects of some industrial-environmental policies which are aimed at protecting the environment without necessarily damaging competitiveness and economic growth. The results show that policies that stimulate environmental R & D, technological innovation and diffusion may provide firms with the correct incentives to avoid damaging the environment, while preserving their competitiveness in the market. Moreover, such a policy, based both on R & D subsidies and on innovation incentives, may not worsen the public-sector budget balance, as a result of the positive effects on economic growth.

On the Robustness of Robustness Checks of the Environmental Kuznets Curve

Since its first inception in the debate on the relationship between environment and growth in 1992, the Environmental Kuznets Curve has been subject of continuous and intense scrutiny. The literature can be roughly divided in two historical phases. Initially, after the seminal contributions, additional work aimed to extend the investigation to new pollutants and to verify the existence of an inverted-U shape as well as assessing the value of the turning point. The following phase focused instead on the robustness of the empirical relationship, particularly with respect to the omission of relevant explanatory variables other than GDP, alternative datasets, functional forms, and grouping of the countries examined. The most recent line of investigation criticizes the Environmental Kuznets Curve on more fundamental grounds, in that it stresses the lack of sufficient statistical testing of the empirical relationship and questions the very existence of the notion of Environmental Kuznets Curve. Attention is in particular drawn on the stationarity properties of the series involved – per capita emissions or concentrations and per capita GDP – and, in case of presence of unit roots, on the cointegration property that must be present for the Environmental Kuznets Curve to be a well-defined concept. Only at that point can the researcher ask whether the long-run relationship exhibits an inverted-U pattern. On the basis of panel integration and cointegration tests for sulphur, Stern (2002, 2003) and Perman and Stern (1999, 2003) have presented evidence and forcefully stated that the Environmental Kuznets Curve does not exist. In this paper we ask whether similar strong conclusions can be arrived at when carrying out tests of fractional panel integration and cointegration. As an example we use the controversial case of carbon dioxide emissions. The results show that more EKCs come back into life relative to traditional integration/cointegration tests. However, we confirm that the EKC remains a fragile concept.

Stock Market Volatility and Investment: Do Only Fundamentals Matter?

The empirical evidence in the volatility literature suggests that movements in stock prices cannot be satisfactorily explained purely in terms of changes in fundamentals. This paper shows how to obtain proxies for the fundamental and fad components of changes in stock prices and asks the question: Do only fundamentals matter for investment decisions? We find that changes in investment are significantly associated with movements in both components of stock prices. The point estimates suggest that changes in fundamentals have a greater effect than changes in non-fundamentals. The statistical significance of the difference between their coefficients depends upon the financing regime. These conclusions are shown to be robust to modifications and extensions of the model.

Environmental Regulation and Competitiveness: Empirical Evidence on the Porter Hypothesis from European Manufacturing Sectors

This paper represents an empirical investigation of the “weak�? and “strong�? Porter Hypothesis (PH) focusing on the manufacturing sectors of European countries between 1997 and 2009. By and large, the literature has analyzed the impact of environmental regulation on innovation and on productivity generally in separate analyses and mostly focusing on the USA. The few existing studies focusing on Europe investigate the effect of environmental regulation either on green innovation or on performance indicators such as exports. We instead look at overall innovation and productivity impact that are the most relevant indicators for the “strong�? PH. This approach allows us to account for potential opportunity costs of induced innovations. As a proxy of environmental policy stringency we use pollution abatement and control expenditures (PACE), which represent one of the few indicators available at the sectoral level. We remedy upon its main drawback, that of potential endogeneity of PACE, by adopting an instrumental variable estimation approach. We find evidence of a positive impact of environmental regulation on the output of innovation activity, as proxied by patents, thus providing support in favor of the “weak�? PH in line with most of the literature. On the other front, we find no evidence in favor or against the “strong�? PH, as productivity appears to be unaffected by the degree of pollution control and abatement efforts.

Investment decisions and the role of debt, liquid assets and cash flow: evidence from Italian panel data

In this paper we study the consequences of imperfect substitutability between internal and external sources of finance for firmś real decisions. The relationship between financial variables and investment when capital markets are imperfect is analysed at both the theoretical and empirical level, using two panels of individual Italian firms. Under the hypothesis that the firm incurs costs of agency and financial distress, we derive both a Q and a Euler equation model for investment, which are then estimated together with a more loosely specified investment equation. The empirical results provide support for a significant departure from the hypothesis of perfect substitutability between internal and external sources of finance.

Interactions between Climate and Trade Policies: A Survey

Economic globalization affects the environment and sustainable development in several ways and through various channels. The purpose of this paper is to review the key links between globalization and the environment. The paper intends to consider the major issues in multilateral economic agreements in trade and finance that affect environmental sustainability. Major policy issues addressed by these agreements are considered from the perspective of trade liberalization, international investment and finance, and technology diffusion. The concept of trade reflected here is thus broader than international exchange of goods and services.