Economics-Watching: How Green Innovation Can Stimulate Economies and Curb Emissions

[from IMF Blog, by Zeina Hasna, Florence Jaumotte & Samuel Pienknagura]

Coordinated climate policies can spur innovation in low-carbon technologies and help them spread to emerging markets and developing economies

Making low-carbon technologies cheaper and more widely available is crucial to reducing harmful emissions.

We have seen decades of progress in green innovation for mitigation and adaptation: from electric cars and clean hydrogen to renewable energy and battery storage.

More recently though, momentum in green innovation has slowed. And promising technologies aren’t spreading fast enough to lower-income countries, where they can be especially helpful to curbing emissions. Green innovation peaked at 10 percent of total patent filings in 2010 and has experienced a mild decline since. The slowdown reflects various factors, including hydraulic fracking that has lowered the price of oil and technological maturity in some initial technologies such as renewables, which slows the pace of innovation.

The slower momentum is concerning because, as we show in a new staff discussion note, green innovation is not only good for containing climate change, but for stimulating economic growth too. As the world confronts one of the weakest five-year growth outlooks in more than three decades, those dual benefits are particularly appealing. They ease concerns about the costs of pursuing more ambitious climate plans. And when countries act jointly on climate, we can speed up low-carbon innovation and its transfer to emerging markets and developing economies.

IMF research [archived PDF] shows that doubling green patent filings can boost gross domestic product by 1.7 percent after five years compared with a baseline scenario. And that’s under our most conservative estimate—other estimates show up to four times the effect.

The economic benefits of green innovation mostly flow through increased investment in the first few years. Over time, further growth benefits come from cheaper energy and production processes that are more energy efficient. Most importantly, they come from less global warming and less frequent (and less costly) climate disasters.

Green innovation is associated with more innovation overall, not just a substitution of green technologies for other kinds. This may be because green technologies often require complementary innovation. More innovation usually means more economic growth.

A key question is how countries can better foster green innovation and its deployment. We highlight how domestic and global climate policies spur green innovation. For example, a big increase in the number of climate policies tends to boost green patent filings, our preferred proxy for green innovation, by 10 percent within five years.

Some of the most effective policies to stimulate green innovation include emissions-trading schemes that cap emissions, feed-in-tariffs, which guarantee a minimum price for renewable energy producers, and government spending, such as subsidies for research and development. What’s more, global climate policies result in much larger increases in green innovation than domestic initiatives alone. International pacts like the Kyoto Protocol and the Paris Agreement amplify the impact of domestic policies on green innovation.

One reason policy synchronization has a prominent impact on domestic green innovation is what is called the market size effect. There’s more incentive to develop low-carbon technologies if innovators can expect to sell into a much larger potential market, that is, in countries which adopted similar climate policies.

Another is that climate policies in other countries generate green innovations and knowledge that can be used in the domestic economy. This is known as technology diffusion. Finally, synchronized policy action and international climate commitments create more certainty around domestic climate policies, as they boost people’s confidence in governments’ commitment to addressing climate change.

Climate policies even help spread the use of low-carbon technologies in countries that are not sources of innovation, through trade and foreign-direct investment. Countries that introduce climate policies see more imports of low-carbon technologies and higher green FDI inflows, especially in emerging markets and developing economies.

Risks of protectionism

Lowering tariffs on low-carbon technologies can further enhance trade and FDI in green technologies. This is especially important for middle- and low-income countries where such tariffs remain high. On the flipside, more protectionist measures would impede the broader spread of low-carbon technologies.

In addition, and given evidence of economies of scale, protectionism—with ultimately smaller potential markets—could stifle incentives for green innovation and lead to duplication of efforts across countries.

The risks of protectionism are exacerbated when climate policies, such as subsidies, do not abide by international rules. For example, local content requirements, whereby only locally produced green goods benefit from subsidies, undermine trust in multilateral trade rules and could result in retaliatory measures.

Beyond embracing a rules-based approach to climate policies, the advanced economies, where most green innovation occurs, have an important responsibility: sharing the technology so that emerging and developing economies can get there faster. Such direct technology transfers hold the promise of a double dividend for emerging markets and developing economies—reducing emissions and yielding economic benefits.

—This blog reflects research by Zeina Hasna, Florence Jaumotte, Jaden Kim, Samuel Pienknagura and Gregor Schwerhoff.

Wired Magazine and Charles Dickens

We think of the leading tech periodical Wired and we think of the internet and smartphone phase of technology innovation.

As always, there’s a wide-angle deeper view that helps you to avoid being “stranded in the present” (to use Professor Peter Fritzsche’s useful phrase and book title as a warning about the flaws of a no-overview sense of reality).

Think back to the famous Charles Dickens classic novel, Hard Times from 1854.

Chapter 11 of this novel talks about “electric wires.” Thus today’s copper wires and fiberoptics have a nineteenth century anticipation.

The end-notes on Hard Times inform us:

“…the wires of the telegraph which were becoming common as an adjunct to the railways from 1846-1847. During the French Wars the old wire-and-lever telegraphs had been set up between Whitehall and the main naval bases. The ‘galvanic’ telegraph had been invented by 1840, the idea of stretching the wires between tall posts by 1843, and by mid-1848 half the railways were so equipped.”

(Charles Dickens, Hard Times, Penguin Books, 1969, page 328)

The following added point will further elaborate on this chapter of the world’s wiring adding a larger comparative perspective:

The Victorian Internet: The Remarkable Story of the Telegraph and the Nineteenth Century’s On-Line Pioneers is a book by Tom Standage. First published in September 1998 through Walker & Company, the book discusses the development and uses of the electric telegraph during the second half of the 19th century and some of the similarities the telegraph shared with the Internet of the late 20th century.

The book’s central idea posits that of these two technologies, it was the telegraph that was the more significant, since the ability to communicate globally at all in real-time was a qualitative shift, while the change brought on by the modern Internet was merely a quantitative shift according to Standage, though, by the same token, global communication was just a quantitative shift from long-distance communication.

The book describes to general readers how some of the uses of telegraph in commercial, military, and social communication were, in a sense, analogous to modern uses for the Internet. A few rather unusual stories are related, about couples who fell in love and even married over the wires, criminals who were caught through the telegraph, etc. The culture which developed between telegraph operators also had some rather unexpected affinities with the Internet. Both cultures made or make use of complex text coding and abbreviated language slang, both required network security experts, and both attracted criminals who used the networks to commit fraud, hack private communications, and send unwanted messages.

Education and Intuition

The 2014 PBS TV series, How We Got to Now is a good miniseries on improvements in glass-making, sewage, water management, etc. that serve as the material/organizational basis for this modern world.

At one point in the series, the host Steven Johnson, a kind of historian of innovation, reveals his idea of how innovation occurs and he focuses on mavericks whose breakthrough is not a sudden “Eureka!” moment, but rather what Johnson calls “a slow hunch.” In other words, the innovators struggle along with a partially understood sense of possibility, very inchoate in the beginning, that comes into better focus with the passage of years and decades, via missteps and boondoggles.

The science writer Arthur Koestler shines a different “flashlight” on this problem of intuitive creativity and its bearing fruit:

Arthur Koestler, CBE (UK: 5 September 1905 – 1 March 1983) was a Hungarian British author and journalist. Koestler was born in Budapest. His masterful book, The Sleepwalkers, is a kind of defense of the way people in the past benefited from a productive sleepwalking on their journeys to scientific advance.

The Sleepwalkers: A History of Man’s Changing Vision of the Universe is a 1959 book by Arthur Koestler. It traces the history of Western cosmology from ancient Mesopotamia to Isaac Newton. He suggests that discoveries in science arise through a process akin to sleepwalking. Not that they arise by chance, but rather that scientists are neither fully aware of what guides their research, nor are they fully aware of the implications of what they discover.

A central theme of the book is the changing relationship between faith and reason. Koestler explores how these seemingly contradictory threads existed harmoniously in many of the greatest intellectuals of the West. He illustrates that while the two are estranged today, in the past the most ground-breaking thinkers were often very spiritual.

Another recurrent theme of this book is the breaking of paradigms in order to create new ones. People—scientists included—hold on to cherished old beliefs with such love and attachment that they refuse to see the wrong in their ideas and the truth in the ideas that are to replace them.

The conclusion he puts forward at the end of the book is that modern science is trying too hard to be rational. Scientists have been at their best when they allowed themselves to behave as “sleepwalkers,” instead of trying too earnestly to ratiocinate.

Add to this overview the “creativity” discussion on The Charlie Rose Show in The Brain Series (2010), where Professor Eric Kandel, the Nobel-prize physiologist, states forthrightly that brain research has no idea about creativity and the prospect of explaining creativity in terms of the brain is very distant indeed.

The arrival of a “slow hunch” (Steven Johnson) and “productive sleepwalking,” as opposed to unproductive kinds of woolgathering (Arthur Koestler), are mind, personality and spirit issues, although they do have brain-chemical “correlations” that cannot be explained mechanistically.

Mysteries all have physical/chemical “correlations” but cannot be simplistically reduced to biochem or genomics.

Some Historical Notes on the Three Quests of China: Dignity, Stability, Understanding

Dignity Quest

In “The Philosopher,” a chapter in the 1922 travel book On a Chinese Screen, W. Somerset Maugham comments, “He was the greatest authority in China on Confucian learning.”

The philosopher mentioned above tells Maugham: 

“I took the Ph.D. in Berlin, you know,” he said.  “And afterwards I studied in Oxford.   …  But his study of Western philosophy had only served in the end to satisfy him that wisdom after all was to be found within the limits of the Confucian canon.  He accepted its philosophy with conviction.  If Confucianism gained so firm a hold on the Chinese it is because it explained and expressed them as no other system of thought could do.  He loathed the modern cry for individualism.  For him society was the unit, and the family the foundation of society.  He upheld the old China and the old school, monarchy, and the rigid canon of Confucius.  He grew violent and bitter as he spoke of the students fresh from foreign universities, who with sacrilegious hands tore down the oldest civilization in the world. ”

“But you, do you know what you are doing?” he exclaimed. “What is the reason for which you deem yourselves our betters? Have you excelled us in arts or letters? Have our thinkers been less profound than yours? Has our civilization been less elaborate, less complicated, less refined than yours? Why, when you lived in caves and clothed yourselves with skins we were a cultured people. Do you know that we tried an experiment which is unique in the history of the world? We sought to rule this great country not by force, but by wisdom. And for centuries we succeeded. Then why does the white man despise the yellow? Shall I tell you? Because he has invented the machine gun. That is your superiority. We are a defenseless horde and you can blow us into eternity. You have shattered the dream of our philosophers that the world could be governed by the power of law and order. And now you are teaching our young men your secret. You have thrust your hideous inventions upon us. Do you not know that we have a genius for mechanics? Do you not know that there are in this country four hundred millions of the most practical and industrious people in the world? Do you think it will take us long to learn? And what will become of your superiority when the yellow man can make as good guns as the white and fire them as straight? You have appealed to the machine gun and by the machine gun shall you be judged.”

Stability Quest

  1. The decade of the 1850s gives a most revealing picture of the Chinese sense of things falling apart.  The Taiping Rebellion, convulsed China in the 1850s. It was a utopian movement which wants to go backwards and forwards at the same time and arrive at a historical paradise.

  2. From 1859-1860, the Second Opium War racks China. The British extract more concessions from the Chinese by the Treaty of Tientsin, a tremendous new humiliation for the Chinese. As part of Britishshock and awe” of that time the Summer Palace in Beijing is burned down.

  3. In Chinese society, to add to this misery, there is a tremendous conflict in China between the Hakka (客家, “Guest People”) with the Punti (本地, “Native/Original People”) called the HakkaPunti conflict, and is referred to in the movie The Hawaiians, based on the James Michener novel.

  4. All of this Chinese turmoil and national weakness is itself taking place in a global context that is threatening. Commodore Perry and his “Black Ships” sail into Edo Bay (now Tokyo Bay) in 1853, to dictate terms to the Japanese which amount to “trade or die” (an Americanshock and awe”).

  5. In 1857-1858, India convulses with the Indian Mutiny, which has been described as the opening chapter of the Indian Independence Movement. The Indian Mutiny, also known as the Sepoy Mutiny, was put down with shocking brutality. The Chinese watching the event, feel rage about the insouciant attitude of Westerners towards non-Western people.(A recent masterpiece Human Smoke by Nicholson Baker shows you the same insouciant attitude in the Bengal Famine of the 1940s and with Churchill’s dismissive comments about the human misery.) The Chinese who were studying news reports coming out of India suddenly learnt that control of India in 1858 was transferred permanently from the East India Company to the Crown, showing that the British could change the rules of the game at will.

  6. In the 19th century Chinese and Japanese thinkers came up with two definitive slogans, which they used to orient themselves.

    Slogan One

    “Western Technology, Eastern Ethics.” What is the balance point between West and the East? Xi Jinping (习近平) is also trying to find a balance. How American must a Chinese Silicon Valley have to be?

    Slogan Two

    “Rich Country, Strong Army.” How fast could China become a rich country with a strong army, without provoking a global backlash—think Chinese leaders since Mao.

  7. Certain opaque and chaotic phenomena in Chinese history haunt the Chinese mind. Mao was reading Chinese historians all his life to try to understand these phenomena. Chinese schoolboys are trying to understand the rebellion called the An Lu-Shan (安禄山) of 755-763, which takes place in the middle of the Tang Dynasty and plunges China into chaos. Leaders, scholars and schoolchildren of China want to decipher the events of this very classic rebellion in Chinese history and to understand what they are always trying to understand: how things go bad. An Lu-Shan was of Turkish and Sogdian origins, which created another kind of nervousness: turmoil in China coming from non-Chinese ethnic groups. Chinese brutality toward both the Tibetans and the Muslims within China echo these anxieties. This classical rebellion is interpreted by Chinese as the beginning of the end of the Tang Dynasty, the first Chinese Golden Age. China’s preoccupation with stability comes from its insecurity about national turmoil such as the An Lu-Shan Rebellion case, which could merge with foreign threats creating a nightmare for China.

  8. China was conquered by the Mongols who created the Yuan Dynasty circa 1300 A.D. China was conquered by the Manchus from 1644-1911. The Japanese assaulted China in the 1930s. Europeans colonized and broke China into pieces in the 19th century. The ultimate symbol of China’s defeat was the two Opium Wars—1839 and 1859—by the British. The tremendous humiliation suffered by the Chinese is masterfully conveyed by Arthur Waley’s classic book, The Opium War Through Chinese Eyes.

Quest to Understand

China and Charles Darwin, by James Pusey, captures the perplexity of the Western intellectual impact on China in the last few lines of the book. “But Charles Darwin honestly entered those mixtures in Chinese heads and made them different. So his influence was real. Chinese of course confused Darwin’s ideas and were confused by them, and of course they got confused in Chinese directions, but small wonder. Every people has gotten confused. For the fact of the matter is, when all is said and done, that no one knows what to make of evolution.”

Many Western ideas and philosophies are troubling and destabilizing for the Chinese such as, individualism before society and family; marriage based on romantic love alone; a society based on innovate-or-die.

The Chinese quest for such modes of stability has a perennial quality.


ICRIER Working Paper № 407

India’s Platform Economy and Emerging Regulatory Challenges

by Rajat Kathuria, Mansi Kedia and Kaushambi Bagchi


The phenomenal rise of the platform economy has reshaped how economies operate across the world. The importance of digital platforms has never been more evident than in combatting the ongoing coronavirus (COVID-19) pandemic. Even with the threat of a global recession looming large, technology companies are witnessing a surge in demand for their services. Platforms distinguish themselves from traditional markets by demonstrating speed and scale of innovation and fostering efficient and productive interaction between buyers and sellers. Enterprises using platform-based business models have expanded beyond social media, travel and entertainment to sectors like financial services, healthcare, logistics and transportation. With the objective of building evidence for policy-making in this sector, this study undertakes an in-depth analysis of the impact generated by the platform economy in India, by estimating consumer surplus from the use of platforms, analyzing its impact on traditional businesses either by transformation or disruption. The estimated consumer surplus is Rs. 438.75 per individual per month, amounting to a collective annual surplus of Rs. 3620 billion for India. At current exchange rates this would amount to $47 billion. 

The growth of platforms has also been accompanied by global concern against their anti-competitive practices, the spread of fake news and harmful content, political bias, etc. The paper discusses regulatory changes and areas of concern for market competition, labour and employment, fake news and misinformation, consumer protection, counterfeit goods and data privacy in India.

[Read full article, archived PDF]

[Executive summary, archived PDF]

Essay 99: Economics—Apple Card’s Fintech Problem; Improving AI-Based Recommendations; IBM & Nazi Germany

from Harvard Business School Working Knowledge:

Gender Bias Complaints against Apple Card Signal a Dark Side to Fintech

The possibility that Apple Card applicants were subject to gender bias opens a new frontier for the financial services sector in which regulators are largely absent, argues Karen Mills.

It’s No Joke: AI Beats Humans at Making You Laugh

New research shows people don’t trust recommendations made by machines—and that’s a problem for marketers who increasingly rely on AI-based technology to persuade consumers. Michael H. Yeomans explains how businesses can overcome that bias.

Do TV Debates Sway Voters?

As Democratic presidential candidates prepare for another debate, Vincent Pons reports that TV forums don’t influence voters.

Lessons from IBM in Nazi Germany

Geoffrey Jones discusses his case study, “Thomas J. Watson, IBM and Nazi Germany,” exploring the options and responsibilities of multinationals with investments in politically reprehensible regimes.

For Better Ideas, Bring the Right People to the Brainstorm

Better ideas emerge when extroverts and people open to new experiences put their heads together, according to research by Rembrand M. Koning. But what about introverts?

Should Non-Compete Clauses Be Abolished?

Non-compete clauses prevent workers from bringing secrets with them to competitors. But increasingly NCCs are unnecessarily restricting job mobility for low-level employees. Should they be banned? asks James Heskett.

Design Rules, Volume 2: How Technology Shapes Organizations series

Working papers by Carliss Y. Baldwin and Kim B. Clark explain how and why different types of technology design pose different opportunities and challenges for organizations and can become vital forces of innovation.