Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/145344 
Year of Publication: 
2016
Series/Report no.: 
Tinbergen Institute Discussion Paper No. 16-037/II
Publisher: 
Tinbergen Institute, Amsterdam and Rotterdam
Abstract: 
Environmentally motivated aid can help developing countries to achieve economic growth while mitigating the impact on emission levels. We argue that the usual practice of giving aid conditionally is not effective, and we therefore study aid that is given unconditionally. Our framework is a differential open-loop Stackelberg game between a developed country (leader) and a developing country (follower). The leader chooses the amount of mitigation aid given to the follower, which the follower either consumes or invests in costly nonpolluting capital or cheap high-emission capital. The leader gives unconditional mitigation aid only when sufficiently rich or caring sufficiently about the environmental quality, while the follower cares about environmental quality to some extent. If aid is given in steady state, it decreases the steady state level of high-emission capital and capital investments in the recipient country and the global pollution stock, but it has no effect on the levels of non-polluting capital and non-polluting investments. It accelerates the economic growth of the follower; this effect is however lower than what static growth theory predicts since most of the aid is consumed. Moreover, we find that the increase in growth takes place in the nonpolluting sector.
Subjects: 
Development aid
Green growth
Conditionality
Open loop Stackelberg equilibrium
JEL: 
Q56
O13
Document Type: 
Working Paper

Files in This Item:
File
Size
515.46 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.