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Political Science > Environmental Policy

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Cover Staff Discussion Notes
Structural Reforms to Accelerate Growth, Ease Policy Trade-offs, and Support the Green Transition in Emerging Market and Developing Economies
Mrs. Nina Budina, Mr. Christian H Ebeke, Ms. Florence Jaumotte, Andrea Medici, Augustus J Panton, Marina M. Tavares, and Bella Yao
In the aftermath of the COVID-19 pandemic, emerging market and developing economies are grappling with economic scarring, social tension, and reduced policy space. Policy actions are already urgently needed to boost growth in the near term and support the ongoing green transition. At the same time, high public debt and persistently high inflation have constrained policy space, posing difficult policy trade-offs. This Staff Discussion Note focuses on emerging market and developing economies and proposes a framework for prioritization, packaging, and sequencing of macrostructural reforms to accelerate growth, alleviate policy trade-offs, and support the green transition. The note shows that prioritizing the removal of the most binding constraints on economic activity, bundling reforms (governance, business deregulation, and external sector reforms), and appropriate sequencing of other reforms (such as labor market and credit sector reforms) can help front-load reform gains. In emerging market and developing economies with large initial structural gaps, the estimated output effects of such a major reform package are sizable—about 4 percent in two years and 8 percent in four years. Achieving higher growth and lower absolute carbon emissions over time requires a well-designed strategy that includes both macrostructural and green reforms.
Keywords:
policy trade-off; climate policy stringency; policy space; policy action; developing economy; Emerging and frontier financial markets; Structural reforms; Climate policy; Greenhouse gas emissions; Global; Caribbean
Cover IMF Working Papers
Restructuring Reforms for Green Growth
Mr. Serhan Cevik and João Tovar Jalles
Policymakers across the world are striving to tackle the century-defining challenge of climate change without undermining potential growth. This paper examines the impact of structural reforms in the energy sector (electricity and gas) on enviromental outcomes and green growth indicators in a panel of 25 advanced economies during the period 1970-2020. We obtain striking results. First, while structural reforms so far failed in reducing greenhouse gas emissions per capita, there is some evidence for greater effectiveness in lowering emissions per unit of GDP. Second, although energy reforms are not associated with higher supply of renewable energy as a share of total energy supply, they appear to stimulate a sustained increase in environmental inventions and patents per capita over the medium term. We also find strong evidence of nonlinear effects, with market-friendly energy reforms leading to better environmental outcomes and green growth in countries with stronger environmental regulations. Looking forward, therefore, structural reforms should be designed not just for market efficiency but also for green growth.
Keywords:
Structural reforms; environment; green growth; panel data; local projection; environmental policy; energy reform; market efficiency; reform shock; EU country; EPS index; Sustainable growth; Greenhouse gas emissions; Global