Abstract The article presents a simple three-sector macroeconomic model that incorporates key structural features common to many Latin American economies. The model allows for the formal identification of three benchmark levels of the real exchange rate (RER). The macroeconomic equilibrium RER is the level consistent with the simultaneous achievement of internal and external balance (i.e. full employment and a sustainable balance of payments). The social equilibrium RER corresponds to a state in which workers, at full employment, obtain a real wage consistent with their income aspirations. The developmental RER is defined as a benchmark level that ensures the labor-absorbing tradable sector earns a risk-adjusted rate of profit comparable to that in developed countries, thereby fostering investment. The three-RER-levels framework provides a unified analytical setting to organize and compare alternative theories developed in Latin America – including unbalanced productive structures, distributive conflict, structural inflation, macroeconomic populism, and stop-and-go cycles – and to clarify how different configurations of the benchmark RER levels underpin competing diagnoses and development strategies in the region.
Abstract This paper develops a structuralist computable general equilibrium model to analyze how commodity-dependent economies respond to typical external shocks and policy interventions. The model is calibrated to a 2010 Social Accounting Matrix for Zambia that integrates national accounts with socio-economic and environmental data and international classifications of occupation, employment status, and institutional sectors. Zambia’s 2010 economic structure is used as an archetypal case of commodity dependence, characterized by under-diversification, structural dualism, and weak sectoral linkages. The model captures the differentiated behavior of industries and institutions under sector-specific constraints. Through comparative-static simulations, we assess the effects of external shocks (a mining export boom and currency depreciation) and of policy interventions typically regarded as development-friendly (green energy investment, wage increases, targeted transfers, and progressive tax reforms). We show how commodity booms generate output growth alongside limited employment gains, declining diversification, and adverse distributional effects; how currency depreciation is contractionary due to inflationary pressures and cost-push dynamics; how investment in non-mining and capacity-constrained sectors promotes diversified, employment-rich growth; and how distributive policies, particularly progressive tax reforms and targeted transfers, enhance equity outcomes with minimal macroeconomic trade-offs. While the framework can be recalibrated to any economy, the mechanisms and conclusions identified here apply broadly to commodity-dependent economies that share these structural features.
Abstract The present paper delves into the intricacies of trade on child labour. Theoretically, developing countries exporting child labour-intensive products can experience increase in child labour employment (termed as substitution effect). However, if trade creates employment opportunities for parents and leads to a more equitable income distribution, child labour incidence may fall due to the income effect. In this context, the present paper investigates the impact of trade liberalisation on child labour. For this purpose, we have identified the net exporter of child labour-intensive goods for a sample of 39 developing countries. Instrumental Variable estimation results indicate substitution effect for the period 2002–2019. The results suggest that trade alone may not be enough to eradicate child labour. Supporting domestic policies like education, health, and more equitable income distributions can have a favourable impact on reducing child labour incidence. Prioritising investments in education, social protection, and inclusive economic opportunities is essential to ensure that the gains from trade liberalisation translate into meaningful and sustained reductions in child labour.
Abstract This paper develops a structurally asymmetric North–South trade model to analyze the international consequences of stagnation and income inequality in advanced economies. Combining a Keynes–Kalecki North with a Lewisian South, the model shows how distributional shifts toward capital in the North can propagate internationally through terms-of-trade effects and generate uneven development. A key contribution is the reinterpretation of Kalecki’s degree of monopoly as a labor-market markdown associated with employer monopsony power. In the baseline model, higher markdowns reduce Northern demand and investment, deteriorate the Southern terms of trade, and slow Southern capital accumulation. Extending the model with a Bhaduri–Marglin investment function allows for both wage-led and profit-led growth regimes. The analysis demonstrates that the stagnationist-crowding channel systematically pushes mature economies toward wage-led growth and permits endogenous regime switching as markdowns evolve over time. The paper contributes to the literature on North–South relations by integrating stagnationist political economy, monopsony-based income distribution, and dynamic growth regimes within a unified framework.
Abstract This study examines the impact of reverse technology spillovers (RTS) from China’s outward foreign direct investment on carbon emission intensity in the country. Drawing on New Structural Economics, we argue that the effectiveness of RTS in promoting energy efficiency and clean technologies depends on the strength of the home country’s absorptive capacity (AC). Furthermore, the mediating role of AC is influenced by the degree of economic alignment between the home country and its OFDI destination countries, insofar as foreign technologies that are better suited to the domestic productive capabilities can be more easily exploited by domestic producers. Using provincial data from 2004 to 2022, our multiple mediation effect model reveals a significant and negative indirect effect of RTS on carbon intensity through absorptive capacity. Additionally, we find that Chinese OFDI directed towards host countries that are more economically aligned with China’s development status enhances the effectiveness of absorptive capacity in mediating the impact of RTS on reducing carbon intensity. These findings suggest that policies aimed at improving China’s absorptive capacity, coupled with investments targeted to countries aligned with its evolving capabilities, are effective strategies to maximize the potential for China’s global integration to support sustainable development.
The green-sustainable transition demands a profound structural transformation of national economies, requiring stable, long-term public financing that can support investments with high uncertainty and delayed returns. Development banks are uniquely positioned to lead this process, as they combine technical expertise with a public mandate to promote structural change and social inclusion. In the case of Brazil, the National Bank for Economic and Social Development (BNDES) has historically played this role; however, it has faced a progressive erosion of its funding base since 2016. Ensuring the effectiveness of BNDES as a key driver of the green transition depends on restoring access to stable sources of financing. In this context, sovereign wealth funds (SWFs) offer a viable institutional solution: as liability-free, intergenerational public savings, they are well suited to finance long-term sustainable investments. This article examines the potential of SWFs as viable and strategic funding instruments for the green transition. SWFs are intergenerational public savings, making them particularly well suited to finance climate mitigation, adaptation, and biodiversity conservation. The article proposes the creation – or reconfiguration – of a national SWF in Brazil with a clear mandate to channel resources to development banks, especially BNDES, in order to finance the transition within a framework of long-term sustainability and social inclusion.
This article examines how Chile is navigating the global energy transition, with a focus on the resurgence of industrial policy. While developed countries have led this transformation–through policies such as the U.S. Inflation Reduction Act and the EU’s Green Industrial Plan–peripheral economies are also strategically positioning themselves in the evolving global economy. Chile’s comparative advantages in critical minerals and renewable energy place the country at the forefront of Latin American green growth initiatives. In contrast to long-held neoliberal policy beliefs, the last three governments have introduced strategies aimed at either developing strategic sectors for the energy transition, such as green hydrogen and lithium, or decarbonizing existing operations, such as copper, while simultaneously enhancing new productive capabilities. This contribution examines policy instruments across different segments (upstream, downstream, and offstream) of the green hydrogen and lithium value chains, with a particular focus on the development of new productive capabilities. By analyzing Chile’s new industrial policy and its associated political-economic challenges, the article provides insights into how peripheral economies can leverage their resource endowments to engage in the reconfiguration of global value chains during the energy transition.
This paper examines how state ownership in the energy sector is linked to climate-related policies, focusing on the Brazilian context. Brazil’s experience is a relevant case study, having undergone significant privatization in the 2010s and early 2020s, followed by the recent announcement of an ambitious industrial policy aimed at reindustrializing the economy and supporting the energy transition. In this sense, the paper’s key objective is, on the one hand, to investigate the recent literature on energy transition focusing on both the energy sector and the state ownership policies, on the other, to bring about the Brazilian experience on privatization and disinvestment policies in the Brazilian energy industry to shed some light on the limits on the new industrial policy proposals concerning energy transition.
Iran implemented trade and exchange rate reforms in 2001. The reforms usually come together in a package with labor reforms, but in Iran, this was not the case. We use a Triple Difference identification strategy to estimate the joint effect of these two policy changes on workers’ wage. We use two waves of households’ Income and Expenditures Surveys (HIES) for the years 2001 and 2004 which are combined with aggregate data on tariffs and imports by industries. Findings significantly confirm that the reforms affect the wage levels positively. The effects on the quantiles of wage distribution reveal that wage effect is higher for workers in the right tail of distribution. This finding reinforces the robustness of our results while revealing significant heterogeneity in the reforms’ distributional consequences. Wage trends evolve similarly across treatment and control groups. so the parallel trends assumption hold: in the absence of the reforms.
Green hydrogen (GH2) ambitions vary significantly across Latin America, despite the region’s favourable conditions for production. This article investigates the contrasting trajectories of GH2 sector development in Chile and Peru – two countries with similar natural endowments but divergent levels of engagement. Drawing on a political economy perspective, the article develops a theoretical typology based on the interaction between state capacity and business positioning. It identifies four ideal-type configurations of state-business relations: cooperative, contentious, business-driven/project-based, and non-alignment/non-development. This typology offers a heuristic tool for analysing different pathways of engagement with GH2. Using a comparative case study design grounded in documentary analysis and 17 expert interviews, the article shows that Chile follows a cooperative model, where a high-capacity state and a supportive business sector jointly advance GH2 development through strategic coordination, public investment, and international partnerships. In contrast, Peru exemplifies a business-driven, fragmented approach, shaped by low state capacity, institutional volatility, and the influence of a powerful fossil fuel sector. The findings highlight the importance of state-business configurations in shaping green industrial policy in the Global South and point to future research avenues including the role of fossil sector resistance, external actors, and civil society mobilization.
The climate crisis and the energy transition pose significant challenges for peripheral countries. In the case of Latin America, this situation is exacerbated by regional fiscal and institutional limitations, along with specific challenges in financing large-scale green investments. These vulnerabilities, known as the triple vulnerability, encompass environmental, external, and fiscal dimensions (Bedossa, B. 2023. “Climate-Financial Trap: An Empirical Approach to Detecting Situations of Double Vulnerability.” AFD MacroDev (51): 1–29.), leading to a Financial-Environmental Trap where these three forms of vulnerability interact and reinforce one another. To break this trap and create, instead, a Financial-Environmental Virtuous Circle, we introduce a policy innovation – a Green Fiscal Rule (GFR). This rule proposes excluding green investments from fiscal balance accounting, thereby increasing fiscal space for financing green projects while simultaneously mitigating fiscal and macroeconomic risks arising from the climate crisis. Using the case study of Colombia, we examine the aforementioned restrictions and demonstrate how this innovation can enhance the ability of peripheral countries to pursue a decarbonized economy and energy transition.
This paper aims to analyze the dynamics and characteristics of wind energy financing in Brazil, highlighting the role of its main actors and seeking to evaluate the controversial hypothesis of the replacement of development banks (DBs) by the capital markets. A qualitative analysis supported by empirical data of sustainable energy financing, focusing on the wind sector, supports the prevalence of DBs in the climate transition financing system, particularly in renewable energy. In Brazil, DBs lead the financing of low-carbon activities, especially sustainable infrastructure and renewable energy. The article provides evidence that, although the capital market has recently gained prominence in financing the wind sector in Brazil, the hypotheses advocating for the superiority of private financing over DBs and the replacement of the latter by the former do not hold up. Overall, the profile of the financing and the target audience served by BNDES, Banco do Nordeste do Brasil, and the capital markets are different, showing a complementary relationship between these funding sources.
Has the global energy transition opened new opportunities for natural resource extraction to foster development? To address this question we propose the concept “developmental extraction” (DE), an intermediate option between neoliberal and anti-extraction. For proponents of DE, mining can be a development-enhancing activity that triggers virtuous economic linkages. Focusing on South America’s Lithium Triangle countries (Argentina, Bolivia, and Chile), we find that the results of DE are mixed, with modest advances in fostering developmental linkages at the local level coupled with uneven outcomes at translocal scales. To explain the contrasting outcomes of DE projects, we offer a multilevel framework that highlights political and territorial challenges of forging developmental linkages. The fortunes of DE depend on the distribution of bargaining power among states, mining companies, and communities and, in turn, on the results of local and translocal negotiations over the terms of extraction.
The global energy transition is leading to a new division of labor in renewable energy production and economic activity in the associated value chains. As trade in renewable energy becomes more technologically feasible and economically viable, it is likely that different countries will focus on different steps in the energy transition value chains, such as the green hydrogen and lithium battery value chains. While industrialized countries are mainly looking to source low-cost renewable energy and critical raw materials in the Global South to green their industries, the benefits for developing countries are less clear. We ask what kind of green industrial policies would be relevant for developing countries to reap more benefits of the global energy transition than reinforcing traditional patterns of commodity exports to the global North. For this, we link the recent debate on green industrial policy to new concepts of developmentalist thinking. We develop a framework to relate specific policies to two distinct neo-developmentalist approaches: one more oriented towards domestic economic diversification and income redistribution, the other one more towards technologically upgrading green energy-linked exports to global markets, thus advancing the economic complexity of the country. Applying recent concepts of industrial policy, we take a broad stance and include macroeconomic and financial policies. We demonstrate that this framework can be used to evaluate green transition strategies and outcomes of countries in the global South with different degrees of economic complexity and size regarding their contribution to economic development.
Would the energy transition mean more of the same for Latin American economies? Classic political economy of development contended that latecomer economic progress was not the outcome of free trade and comparative advantage, that linkages with the domestic economy mattered, and that peripheral capitalism was not doomed to fail. In its possibilist sense, “dependent development” was both diagnosis -of common structural challenges and diverse national paths- and possibility. At the era of global energy transition, we find this overarching perspective of economic development to be still enlightening. The papers collected in this special issue draw on diverse conceptual frameworks within structuralist development theories, especially on renewed concepts of (green) industrial policy and developmentalism, and on a differentiated understanding of the creation of linkages at different scales, a so-called developmental extraction. The contributions analyze development ideas and state action in response to, as well as opportunities and challenges deriving from the energy transition. Analytically, papers cover growth governance, development finance, and industrial policy, which we conceptualize as the main contributing factors to the transition, with case study research focused on new renewable energy and critical mineral policy sectors. Our political economy of peripheral development is interdisciplinary, centered on understanding Latin American varieties of state (in)action in shaping the energy transition economy.
We analyze the role of trade linkages in the international transmission of shocks originating from the United States. We also study the effects of shocks on GDP and imports. This study employs a GVAR model and uses quarterly data for 31 countries from 1994Q1 to 2019Q4. The main findings are as follows: 1) The U.S. economy serves as a significant source of external shocks; 2) the magnitude and persistence of responses to these shocks vary across countries and regions; 3) economies in North and South America are more vulnerable to U.S. output and trade shocks than economies in the Asia-Pacific and Middle Eastern regions; 4) both North and South American economies, along with European economies, experience significant decreases in output in response to negative shocks to U.S. imports; and 5) trade is a crucial mechanism for the international transmission of shocks. These findings are valuable for understanding the transmission mechanisms of international shocks and the evolution of the global economy.
This paper delves into the complexities of sovereign debt restructuring in the 21st century, including the rising debt burdens of developing countries, the growing influence of private creditors and new official creditors, and novel economic pressures generated by climate change. It argues for a multi-faceted approach to promote sustainable debt management that goes beyond existing mechanisms. It proposes the establishment of a permanent institution to negotiate debt restructuring together with specific mechanisms to manage the current debt crisis. The latter could be based on revisions to the Common Framework for Debt Treatment or an alternative instrument. Additionally, it emphasizes the importance of strengthening debt transparency through a global debt registry and improved reporting standards. It also explores the role of responsible lending and borrowing practices, the regulation of credit rating agencies, and early warning systems to enable proactive risk management. It also examines innovative debt instruments such as debt-for-nature swaps, sustainable bonds, and state-contingent bonds, highlighting their potential to address specific challenges. Ultimately, the paper underscores the need for a collaborative effort among all stakeholders – international financial institutions, national governments, and private creditors – to build a more resilient and sustainable international debt architecture.
International remittances are crucial in developing economies because they offset trade balance deficits, improve the living standards of remittance recipients, increase foreign exchange reserves, and reduce dependence on foreign capital with high interest rates. Do international remittances affect income inequality? Is this effect different between advanced and developing economies? This paper looks for the answers by employing the two-step system/difference GMM Arellano–Bond (2SGMM/2DGMM) and Pooled Mean Group (PMG) estimators to study the influence of remittance inflow on income inequality for 30 advanced and 31 developing economies from 2005 until 2023. The paper presents several intriguing findings. Firstly, it reveals a counter-intuitive result: international remittances widen income inequality in advanced economies but narrow it in developing economies. Secondly, it demonstrates that economic growth reduces income inequality in advanced economies but exacerbates it in developing economies. Thirdly, the study indicates that government spending increases income inequality in advanced economies while decreasing it in developing economies. Lastly, inflation is shown to enhance income inequality in both groups. These findings highlight some implications for governments in advanced and developing economies in channelizing international remittances to reduce income inequality.
While the European Union’s Carbon Border Adjustment Mechanism (CBAM) has a global impact by design, the scale of its “spillover effects” on other countries is seldom studied. This paper contributes to academic and policy discussions by using a recursive dynamic CGE model to assess quantitatively the impact of the CBAM on other countries, especially developing countries, and identify countries most vulnerable to its spillover effects. The simulation results suggest the CBAM widens the gap between developed and developing countries in terms of GDP and welfare. Thus, it may worsen the unequal income and welfare distributions between rich and poor economies and curb the capacity of low-income countries to decarbonize their economies. To ensure the low-carbon transition of advanced economies does not negatively or unfairly impact developing countries, international organizations should play a key role in identifying and addressing the cross-border spillover effects of climate policies, especially on the balances of payments and growth trajectories of vulnerable countries.
