This Note prepared for the G20 Infrastructure Working Group summarizes the main finding of the IMF flagships regarding the role of environmentally sustainable investment for the recovery. It emphasizes that environmentally sustainable investment is an important enabler for a resilient greener, and inclusive recovery—it creates jobs, spurs economic growth, addresses climate change, and improves the quality of life. It can also stimulate much needed private sector greener and resilient investment.
An unprecedented policy response and rapid progress in vaccine development have helped pull the global economy from a deep recession. But the outlook is marked by high uncertainty and great divergence. Carefully calibrated policies and stronger international cooperation are vital to safely exit the crisis. Transformative policies should aim for fast convergence toward a green, digital, and inclusive future.
This paper examines the impact of highway expansion on aggregate productivity growth and
sectoral reallocation between cities in China. To do so, I construct a unique dataset of
bilateral transportation costs between Chinese cities, digitized highway network maps, and
firm-level census. I first derive and estimate a market access measure that summarizes all
direct and indirect impact of trade costs on city productivity. I then construct an instrumental
variable to examine the causal impact of highways on economic outcomes and the underlying
channels. The results suggest that highways promoted aggregate productivity growth by
facilitating firm entry, exit and reallocation. I also find evidence that the national highway
system led to a sectoral reallocation between cities in China.
This paper identifies a new mechanism leading to inefficiency in capital reallocation at the
extensive margin when an economy experiences a sectoral boom. I argue that imperfections
in the financial market and capital barriers to entry in the booming sector create a
misallocation of managerial talent. Using comprehensive firm-level data from China, I first
provide evidence that more productive firms reallocate capital to the booming real estate
sector, and demonstrate that the pattern is likely driven by fewer financial constraints on
these firms. I then use a structural estimation to verify the talent misallocation. Finally, I
calibrate a dynamic model and find that the without the misallocation, the TFP growth in the
manufacturing sector would have improved by 0.5% per year.
There are, by now, several long term, time series data sets on important housing & macro
variables, such as land prices, house prices, and the housing wealth-to-income ratio.
However, an appropriate theory that can be employed to think about such data and associated
research questions has been lacking. We present a new housing & macro model that is
designed specifically to analyze the long term. As an illustrative application, we demonstrate
that the calibrated model replicates, with remarkable accuracy, the historical evolution of
housing wealth (relative to income) after World War II and suggests a further considerable
increase in the future. The model also accounts for the close connection of house prices to
land prices in the data. We also compare our framework to the canonical housing & macro
model, typically employed to analyze business cycles, and highlight the main differences.