As modern agricultural growth has been attained through increasing use of material input, it is discussed whether agricultural growth can be sustained in the long run within the limit of environmental tolerance. In order to investigate the possibility of growth, this study applies Aghion and Howitt's Schumpeterian growth model, and conducts empirical analyses using rice production panel data from eight regions in Japan for the period 1984 to 1999. Estimation of the translog cost function, which incorporates quality improvement effects, as well as the growth accounting estimation, reveals that the growth with quality improvement occurs, as the growth with increasing material input is stagnant. The quality-based innovation does not lead to increases in chemical input, implying the shift in innovation plays a key role in attaining sustainable development, which also explains a greater increase in pollution at the early stage of development and its slowing down. Sustainable growth can be attained through quality innovation even if environmental regulations are tightened.


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