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  • Stephie Fried (a1)

Much of the capital equipment used in developing countries is created in the OECD and, thus, is designed to make optimal use of the relative supplies of capital, labor, and energy in these developed countries. However, differences in capital–labor ratios between developed and developing countries create a mismatch between the energy requirements of this capital and developing countries' optimal levels of energy intensity. Using a calibrated macroeconomic model, this paper analyzes the implications of this mismatch for climate policy. I find that using capital equipment with “inappropriate” energy intensity has sizeable consequences for both the effectiveness and the welfare cost of climate policies in developing countries.

Corresponding author
Address correspondence to: Stephie Fried, Department of Economics, W.P. Carey School of Business, Arizona State University, 501 E. Orange Street Tempe AZ 85287. e-mail:
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I thank Betty Daniel, Mark Jacobsen, Irina Telyukova, James Hamilton, Thomas Baranga, Valerie Ramey, Giacomo Rondina, and William Peterman, as well as seminar participants at UCSD for valuable suggestions. I thank NSF-IGERT for support.

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Macroeconomic Dynamics
  • ISSN: 1365-1005
  • EISSN: 1469-8056
  • URL: /core/journals/macroeconomic-dynamics
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