No.E2018009

 

Green Transformation:

A System Dynamics Model on Endowment, Investment and Employment

Yan Wang, Hefeng Tong and Jiajun Xu

 

Abstract:

Structural transformation is critical to attaining improvements in productivity and employment generation. However, it is imperative that any structural transformation undertaken should take a green approach as the international community have placed great emphasis on achieving Sustainable Development Goals (SDGs) by 2030. Given the importance of green structural transformation, this paper attempts to explore a system dynamics (SD) model to analyze and simulate three policy options to achieve transformation to a green economy in an effort to shed new lights onto the claimed tradeoff between competitiveness and greenness. Consistent with the New Structural Economics (Lin 2010, 2011), our main analytic approach starts from the structure of endowment (stocks), followed by investment (flows) in green sectors and lastly the structure of employment and changes in labor productivity. The key findings from our simulation results are as follows: first, although there is a short run negative impact on GDP growth, the long run benefits outweigh the short run cost; secondly, green sectors will expand rapidly generating significant number of jobs; and lastly, as pollutant emissions fall along with a decline in pollutant intensity, labor force becomes healthier and more resilient thus contributing to a rise in productivity in the economy. 

 

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