Can Environmental Regulations Boost Growth?

I develop a simple new growth model to demonstrate a mechanism through which environmental regulations can boost the growth rate of production towards its socially optimal level, a version of the Porter hypothesis. The mechanism is also likely to operate in much more complex economies, although the net effect of regulations will be uncertain in such economies. In the model, growth is driven by researchers striving for monopoly profits. New technologies must compete with the old for market share. They are not only more productive than the old, but also more environmentally friendly. Introduction of technology standards favours new technologies and therefore increases expected returns to research, hence the quantity of research – and the growth rate – in the economy goes up. This may be a social benefit if knowledge, which drives growth, is underprovided due to spillovers. Key words: endogenous growth, innovation, environment, Schumpeter, Porter hypothesis.