{
  "title": "How Reform Can Aid Growth and Green Transition in Developing Economies",
  "publication": "IMF Blog, September 25, 2023",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2023/09/25/how-reform-can-aid-growth-and-green-transition-in-developing-economies",
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  "summary": "New approaches to governance, business regulation, and trade can boost output by 4 percent in two years and help countries curb emissions",
  "sections": [
    {
      "heading": "Context and challenge",
      "content": "- Many emerging market and developing economies face threats to economic growth and limited policy space due to high inflation, rising debt, and balance of payments pressures.\n- Challenges intensified during the pandemic and by Russia’s war in Ukraine, increasing risks of slower growth, constrained capacity to support vulnerable populations, and substantial social instability.\n- These economies must balance participation in global efforts to reduce carbon emissions with the need to preserve growth and jobs."
    },
    {
      "heading": "Key findings on reform effects",
      "content": "- Economy-wide reforms that overhaul institutions and regulations for businesses and people can produce rapid gains even under severe economic strains if reforms are properly prioritized and sequenced.\n- First-generation reforms—targeting governance, business regulation, and external integration—promote domestic and foreign investment and enhance labor productivity.\n- In economies with significant structural impediments, first-generation reforms can boost output levels by up to 4 percent in two years and up to 8 percent in four years.\n- Historical illustrations cited:\n  - Georgia’s business regulation streamlining and fiscal reform in 2005.\n  - Senegal’s comprehensive overhauls to improve governance, business regulation and external integration put in place in 2014-18."
    },
    {
      "heading": "Structural impediments addressed by reforms",
      "content": "- Weak governance driven by government ineffectiveness, political instability, and corruption.\n- Excessive regulation that makes it difficult to open and run a business, particularly in low-income countries.\n- Limits on trade, notably through controls on foreign exchange and access to foreign capital.\n- Restrictions in credit markets and labor markets."
    },
    {
      "heading": "Interaction with the green transition",
      "content": "- First-generation reforms are essential both to generate the growth needed to support the green transition and to facilitate the shift to low-carbon activities.\n- Green policies, especially energy taxation, achieve better decarbonization outcomes after first-generation reforms that make the economy more responsive to price signals.\n- Governance reforms can:\n  - Make policy more predictable, increasing private-sector incentives to direct capital to green investments.\n  - Reduce implementation risks for climate projects and attract more financing from abroad.\n- Reducing barriers to creating businesses enables private investment in new green sectors.\n- Lowering trade barriers expands access to low-carbon technology and facilitates critical technology transfers for less technologically advanced countries.\n- First-generation reforms alone are insufficient: faster growth can increase emissions, so stringent green reforms—energy taxation, regulations, and green investments—are necessary to significantly reduce the emission intensity of economic activity.\n- Combining first-generation and green reforms enables reductions in overall emissions while supporting growth."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Prioritize, sequence, and bundle reforms to address the most binding constraints to economic activity first (governance, business regulation, trade and access to foreign capital).\n- Frontload reform packages to deliver visible gains quickly, helping overcome resistance to major changes and build public support, including for the green transition.\n- Pair structural reforms with stringent green measures (energy taxation, regulations, green investments) to ensure growth does not increase emissions and to reduce emission intensity over time.\n- Use governance improvements to lower implementation risk and attract foreign financing for climate projects.\n- Reduce barriers for business creation and trade to enable private-sector-led investment in low-carbon technologies and sectors.\n\nThis blog reflects research by Nina Budina; Christian Ebeke; Florence Jaumotte; Andrea Medici; Augustus Panton; Marina M. Tavares; and Bella Yao (IMF staff).\n\n---\n\n\n References\n\n- new staff discussion note\n- Georgia\n- Senegal\n\nSource: https://www.imf.org/en/blogs/articles/2023/09/25/how-reform-can-aid-growth-and-green-transition-in-developing-economies"
    }
  ],
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    "Authors: Christian Ebeke, Florence Jaumotte",
    "Published: September 25, 2023",
    "Many emerging market and developing economies face threats to economic growth and limited policy space due to high inflation, rising debt, and balance of payments pressures.",
    "Challenges intensified during the pandemic and by Russia’s war in Ukraine, increasing risks of slower growth, constrained capacity to support vulnerable populations, and substantial social instability.",
    "These economies must balance participation in global efforts to reduce carbon emissions with the need to preserve growth and jobs.",
    "Economy-wide reforms that overhaul institutions and regulations for businesses and people can produce rapid gains even under severe economic strains if reforms are properly prioritized and sequenced.",
    "First-generation reforms—targeting governance, business regulation, and external integration—promote domestic and foreign investment and enhance labor productivity.",
    "In economies with significant structural impediments, first-generation reforms can boost output levels by up to 4 percent in two years and up to 8 percent in four years.",
    "Historical illustrations cited:",
    "Weak governance driven by government ineffectiveness, political instability, and corruption.",
    "Excessive regulation that makes it difficult to open and run a business, particularly in low-income countries.",
    "Limits on trade, notably through controls on foreign exchange and access to foreign capital.",
    "Restrictions in credit markets and labor markets.",
    "First-generation reforms are essential both to generate the growth needed to support the green transition and to facilitate the shift to low-carbon activities.",
    "Green policies, especially energy taxation, achieve better decarbonization outcomes after first-generation reforms that make the economy more responsive to price signals.",
    "Governance reforms can:",
    "Reducing barriers to creating businesses enables private investment in new green sectors.",
    "Lowering trade barriers expands access to low-carbon technology and facilitates critical technology transfers for less technologically advanced countries.",
    "First-generation reforms alone are insufficient: faster growth can increase emissions, so stringent green reforms—energy taxation, regulations, and green investments—are necessary to significantly reduce the emission intensity of economic activity.",
    "Combining first-generation and green reforms enables reductions in overall emissions while supporting growth.",
    "Prioritize, sequence, and bundle reforms to address the most binding constraints to economic activity first (governance, business regulation, trade and access to foreign capital).",
    "Frontload reform packages to deliver visible gains quickly, helping overcome resistance to major changes and build public support, including for the green transition.",
    "Pair structural reforms with stringent green measures (energy taxation, regulations, green investments) to ensure growth does not increase emissions and to reduce emission intensity over time.",
    "Use governance improvements to lower implementation risk and attract foreign financing for climate projects.",
    "Reduce barriers for business creation and trade to enable private-sector-led investment in low-carbon technologies and sectors.",
    "[new staff discussion note](https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2023/09/21/Structural-Reforms-to-Accelerate-Growth-Ease-Policy-Trade-offs-and-Support-the-Green-538429?cid=bl-com-SDNEA2023007)",
    "[Georgia](https://www.imf.org/en/Publications/CR/Issues/2016/12/31/Georgia-Staff-Report-for-the-2006-Article-IV-Consultation-Third-Review-Under-the-Poverty-19240)",
    "[Senegal](https://www.imf.org/en/Publications/CR/Issues/2019/01/28/Senegal-Staff-Report-for-the-2018-Article-IV-Consultation-and-Seventh-Review-Under-the-46553)"
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