Clean Development Mechanism (CDM) as a funding opportunity for development: A macroeconomic CGE analysis of the Peruvian experience

The Clean Development Mechanism (CDM) under the Kyoto Protocol constitutes a major tool in the fight against climate change; it is also an important foreign direct investment funding opportunity for Southern countries. Yet, few studies have focused on the economic impact of CDM on host countries. This study attempts such an assessment in Peru, using a computable general equilibrium (CGE) model that accounts for both the productive and regional dualism of the national economy. The numerical simulation of macroeconomic shocks generated by current and future CDM projects reveals the significant potential impact of such investments in terms of employment, growth, and regional imbalance in this developing country.