"Green Stimulus," Economic Recovery, And Long-Term Sustainable Development

Abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues.An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished.The papers carry the names of the authors and should be cited accordingly.The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors.They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. Policy Research Working Paper 5163This paper discusses short-run and long-run effects of "green stimulus" efforts, and compares these effects with "non-green" fiscal stimuli.Green stimulus is defined here as short-run fiscal stimuli that also serve a "green" or environmental purpose in a situation of "crisis" characterized by temporary under-employment.A number of recently enacted national stimulus packages contain sizeable "green" components.The authors categorize effects according to their a) shortrun employment effects, b) long-run growth effects, c) effects on carbon emissions, and d) "co-benefit" effects (on the environment, natural resources, and for other externalities).The most beneficial "green" programs in times of crisis are those that can stimulate employment This paper-a product of the Environment and Energy Team, Development Research Group-is part of a larger effort in the department to investigate effective policy responses to the crisis.Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org.The author may be contacted at jstrand1@worldbank.org. in the short run, and lead to large "learning curve" effects via lower production costs in the longer term.The overall assessment is that most "green stimulus" programs that have large short-run employment and environmental effects are likely to have less significant positive effects for long-run growth, and vice versa, implying a trade-off in many cases between short-run and long-run impacts.There are also trade-offs for employment generation in that programs that yield larger (smaller) employment effects tend to lead to more employment gains for largely lower-skilled (higher-skilled) workers, so that the longterm growth effects are relatively small (large).Ultimately, the results reinforce the point that different instruments are needed for addressing different problems.

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