Recycling carbon taxes for reindustrialisation: addressing structural rigidity and financialisation in natural resource exporting countries

Magacho, Guilherme and Godin, Antoine and Spinola, Danilo and Yilmaz, Devrin (2024) Recycling carbon taxes for reindustrialisation: addressing structural rigidity and financialisation in natural resource exporting countries. Working Paper. Agence Française de Développement, Paris, France.

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Abstract

Inclusion of developing and emerging countries in the low carbon transition agenda is imperative to meet climate goals, and policies should be tailored to their unique characteristics. Despite their significance, the structural specifics of these countries are frequently overlooked in lowcarbon transition models. In an effort to establish an appropriate framework for such analyses, this article formulates a Structural StockFlow Consistent (Structural SFC)model designed for open developing economies. This model categorizes production into three sectors: resource based exports, non-tradable goods and services, and other tradable sectors. While SFC models play a crucial role in emphasizing financial constraints, they frequently lack a multi-sectoral viewpoint and disregard structural specificities. Our model makes a dual contribution: (1) it offers a flexible framework capable of accommodating diverse country characteristics while balancing short-term demand with long term structural strategies, and (2) it underscores the inadequacy of relying solely on carbon pricing for economies deeply rooted in carbon-intensive sectors. By incorporating structurally distinct sectors within a genuinely monetary framework, the model enables us to comprehend the decisive role played by financial constraints arising from structural rigidities in shaping the dynamics of the low-carbon transition. Our findings show that the efficacy of carbon pricing is contingent on a country’s commercial, financial, and productionstructure. Inclusion of developing and emerging countries in the low carbon transition agenda is imperative to meet climate goals, and policies should be tailored to their unique characteristics. Despite their significance, the structural specifics of these countries are frequently overlooked in lowcarbon transition models. In an effort to establish an appropriate framework for such analyses, this article formulates a Structural StockFlow Consistent (Structural SFC)model designed for open developing economies. This model categorizes production into three sectors: resource based exports, non-tradable goods and services, and other tradable sectors. While SFC models play a crucial role in emphasizing financial constraints, they frequently lack a multi-sectoral viewpoint and disregard structural specificities. Our model makes a dual contribution: (1) it offers a flexible framework capable of accommodating diverse country characteristics while balancing short-term demand with long term structural strategies, and (2) it underscores the inadequacy of relying solely on carbon pricing for economies deeply rooted in carbon-intensive sectors. By incorporating structurally distinct sectors within a genuinely monetary framework, the model enables us to comprehend the decisive role played by financial constraints arising from structural rigidities in shaping the dynamics of the low-carbon transition. Our findings show that the efficacy of carbon pricing is contingent on a country’s commercial, financial, and productionstructure.

Item Type: Monograph (Working Paper)
Dates:
Date
Event
1 March 2024
Published Online
Uncontrolled Keywords: Low-carbon transition, Stock-Flow Consistent Model, Developing and emerging countries, Structural Change, Industrialisation
Subjects: CAH17 - business and management > CAH17-01 - business and management > CAH17-01-02 - business studies
Divisions: Faculty of Business, Law and Social Sciences > College of Accountancy, Finance and Economics
Faculty of Business, Law and Social Sciences > College of Business, Digital Transformation & Entrepreneurship
Depositing User: Gemma Tonks
Date Deposited: 30 Apr 2024 13:05
Last Modified: 20 Jun 2024 12:04
URI: https://www.open-access.bcu.ac.uk/id/eprint/15459

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