The Effects and Implications of Green Public Procurement with Economy-wide Perspective: A Computable General Equilibrium approach

Yeongjun Yeo, Yeongjun Yeo, Ki-yoon Shin and Jeong-Dong Lee ()

No 9519, EcoMod2016 from EcoMod

Abstract: Nowadays, with increasing interests of demand-side innovation policy, there is needs for investigating public procurement policy aiming to strengthen the industrial competitiveness by expanding new markets with innovative activities. Public Procurement is regarded as the most effective policy for stimulating innovation in relevant sectors. Under this background, each countries in OECD spends about 15~20% of its GDP on public procurement, and most of the demands in industry and technology sector such as energy, environment, health, construction is stimulated by public procurement. Especially, in order to achieve both mitigating climate change and economic revitalization, the share of green public procurement which is public procurement for green products in total public procurement is enlarging among developed countries. Despite of the amount of public procurement, and policy significance and effectiveness, there is few study on the effects of public procurement for innovation and the macroeconomic analysis from public procurement. In addition, some empirical studies which investigated policy impact of green public procurement are also limited in partial equilibrium perspectives, and they did not show the integrated and macro-economic impact of public procurement. Therefore, with previous literature reviews, this study presents general equilibrium perspectives which can analyze environmental, economic, and social benefits from public procurement simultaneously. Based on the conceptual framework from the previous literature, this study will present empirical results of the impacts of green public procurement quantitatively by computable general equilibrium(CGE) model. To analyze the economic impacts of green public procurement, it is essential to represent the innovation activities and its contributions within the CGE model. For the analysis, we construct the knowledge-based social accounting matrix(SAM), which includes knowledge in factors of production and R&D investment under investment. In addition, we construct the knowledge-based CGE model to capture the innovation related activities, and its effects on the macroeconomic system. Main differences between the knowledge-based CGE model and conventional CGE model is that factors of production include knowledge, and investment includes R&D investment. Another difference is that industry-specific knowledge stock accumulated by R&D investment influences productivity of other industries through spillover effect. These features of knowledge-based CGE model enable us to understand various macro-economic effects of green public procurement(GPP) considering innovation related aspects. Although green public procurement(GPP) could have indirect and direct effects on the economy in terms of environmental, economic, and social perspectives, previous literature give us bounded information in understanding potential effects of the GPP. This is because most studies on the GPP are limited to a specific cases based on the theoretical or conceptual level, and analyzing its effect with partial equilibrium perspectives. Firstly, GPP can have environmental impacts through energy savings and reduction of greenhouse gases by reducing energy consumption with the procurement of energy efficient products by the public sectors. Each country including Korea has its own standards of energy efficiency for the products, and GPP is implemented as the government preferentially buy the products with high levels of energy efficiency. Secondly, the GPP can have economic impacts through creating and escalating the market, because the public sector take a role of lead consumer in green products and services. As a lead consumer, the public sector reduce market and technological uncertainties by specification of the demand of green technology and products. Thanks to the public sector, potential suppliers can escalate their pre-commercialization R&D and commercialization process. That is, GPP reduce the uncertainty across whole stage of production from development of new technology to diffusion of the products by specifying the information on demand for the industry, and it leads more innovation activity of suppliers and investment for the production. Therefore, this study aims to analyze the various impacts of green public procurement in environmental, and economic perspectives as discussed above. In addition, GPP’s main effects could appear in various pathways, including the environmental, economic, and social factors. Therefore, as an empirical study we will try to model those factors within the knolwedge-based CGE model.

Keywords: South Korea; General equilibrium modeling (CGE); Impact and scenario analysis (search for similar items in EconPapers)
Date: 2016-07-04
New Economics Papers: this item is included in nep-cmp, nep-cse, nep-ene, nep-env and nep-ino
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ekd:009007:9519

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