China’s green stimulus package: An analysis of benefits from investing early

Abstract

The study seeks to verify the hypothesis that China will attain a first – mover advantage in the green industry through devoting a large chunk (amounting to $ 221.5 billion) of its stimulus package to the sector. The objective of the analysis is to understand the short-term and long term impact a choice of stimulus can have. Moreover, a better understanding of the clean technology industry is sought especially with respect to studying whether they are subject to increasing returns to scale and a steep learning curve when there is early entry. An understanding of the terms clean technology and green stimulus are built following which global trends in investment in the area are analyzed. A model to study the short-run and long-run impact of a green stimulus versus a conventional stimulus is built and analyzed. To support the model empirical evidence in the form of statistics relating to specific projects/programs in USA, Korea and China are studied. Arguments against the hypothesis or aspects of the hypothesis and analysis are gleaned from various research studies and journals and an appropriate response given based on the analysis in the study and previous research by economists and industry experts. Through the analysis, it is concluded that China will in fact attain a sustained competitive advantage in global markets. There are increasing returns to scale and a steep learning curve which would provide it with a first mover advantage in the years to come. This would be supported by the development of ancillary industries to support green ventures. China would be a leader in terms of technology and process innovations as well as cost effectiveness due to economies of scale, learning acquired and easy domestic availability of inputs.