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Who's Going Green and Why? Trends and Determinants of Green Investment

  • Luc Eyraud
  • Changchang Zhang
  • Abdoul Aziz Wane
  • Benedict J. Clements
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    This paper fills a gap in the macroeconomic literature on renewable sources of energy. It offers a definition of green investment and analyzes the trends and determinants of this investment over the last decade for 35 advanced and emerging countries. We use a new multi-country historical dataset and find that green investment has become a key driver of the energy sector and that its rapid growth is now mostly driven by China. Our econometric results suggest that green investment is boosted by economic growth, a sound financial system conducive to low interest rates, and high fuel prices. We also find that some policy interventions, such as the introduction of carbon pricing schemes, or "feed-in-tariffs," which require use of "green" energy, have a positive and significant impact on green investment. Other interventions, such as biofuel support, do not appear to be associated with higher green investment.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/296.

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    Length: 39
    Date of creation: 01 Dec 2011
    Date of revision:
    Handle: RePEc:imf:imfwpa:11/296
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    1. Ambec, S. & Lanoie, P., 2007. "When and why does it pay to be green ?," Working Papers 200704, Grenoble Applied Economics Laboratory (GAEL).
    2. Ian W.H. Parry, 2011. "Reforming the Tax System to Promote Environmental Objectives; An Application to Mauritius," IMF Working Papers 11/124, International Monetary Fund.
    3. Orazio P. Attanasio & Lucio Picci & Antonello E. Scorcu, 2000. "Saving, Growth, and Investment: A Macroeconomic Analysis Using a Panel of Countries," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 182-211, May.
    4. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
    5. Gene M. Grossman & Alan B. Krueger, 1994. "Economic Growth and the Environment," NBER Working Papers 4634, National Bureau of Economic Research, Inc.
    6. Stern, David I. & Common, Michael S. & Barbier, Edward B., 1996. "Economic growth and environmental degradation: The environmental Kuznets curve and sustainable development," World Development, Elsevier, vol. 24(7), pages 1151-1160, July.
    7. Selden Thomas M. & Song Daqing, 1994. "Environmental Quality and Development: Is There a Kuznets Curve for Air Pollution Emissions?," Journal of Environmental Economics and Management, Elsevier, vol. 27(2), pages 147-162, September.
    8. P. Guerrieri & M. Luciani & V. Meliciani, 2011. "The determinants of investment in information and communication technologies," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 20(4), pages 387-403.
    9. Mitchell, Donald, 2008. "A note on rising food prices," Policy Research Working Paper Series 4682, The World Bank.
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