Essays on Public Investments in Green Projects and Development Paradigm of Economic Growth and Environmental Sustainability

This doctoral thesis is a collection of three empirical essays that develops an analytical framework to assess the impacts of demand-driven recovery investments, in local, regional, and multi-regional economies in equilibrium. These recovery investments are part of a broader regional fiscal spending on many projects, including investment in urban development, environmental quality, industrial sites’ rehabilitation, ports, healthcare, social inclusion and education, government systems, and various infrastructure initiatives aimed at stimulating economic growth in regions and cities affected by natural disasters and the economic slowdown caused by COVID-19 pandemic. The practical application of the developed framework is through case studies, including the Taranto Institutional Development Contract (CIS) strategic investment plan in the Apulia region of Southern Italy and the NextGenerationEU (NGEU) recovery investment projects in the Lombardy region of Northern Italy. The short-run objectives of the CIS and NGEU recovery plans for Europe in response to the Covid-pandemic crisis are consistent with the European Green Deal (EGD) long-term ambition of reducing greenhouse gas (GHG) emissions 55% by 2030 and climate neutrality by 2050 (EC, 2020; Bongardt et al. 2022). Specifically, the NGEU investment funds are dedicated to EU member states and broken down into six Missions, which represent the main thematic areas of policy interventions (Governo Italiano, 2021). These Missions include (M1) Digitalization, Competitiveness, and Culture; (M2) Green Revolution and Ecological Transitions; (M3) Infrastructure for Sustainable Mobility; (M4) Education and Research; (M5) Inclusive Cohesion; and (M6) Health. The first chapter, titled “The dynamic approach of modelling regional recovery investment policies using environmentally-extended SAM Matrix”, analyzes the socioeconomic and environmental dynamic impacts of CIS investments of around €1097 million for the 2021-2026 period on industrial outputs, household employment, and induced consumption patterns in the Italian province of Taranto. I do this, using an environmentally extended social accounting matrix (ESAM) technique. The proposed method integrates impact evaluation, aimed at achieving climate neutrality in a local economy with a cost-benefit (CB) analysis of the project. My findings show that the dynamic impact on the local economy yields a benefit/cost ratio of 5.63. This ratio increases to 7.88 by integrating the CB analysis, and revenues generated during the operational period of the project. However, accounting for environmental externalities associated with industrial GHG emissions, reduces the benefit/cost ratio by approximately 16%, during the construction period of the project. The investments’ distributional impact on households’ annual income is deemed acceptably equitable. The second chapter, titled “Impact techniques of modelling next-gen infrastructure investments projects to redress regional disparities using multi-regional input-output model”, proposes an impact evaluation technique to estimates the socioeconomic impact of CIS regional investments on the labor markets (skilled and unskilled), private enterprises, and different categories of households. I do so by implementing a multi-regional input-output (MRIO) model with inter-regional trade in the Apulia region to estimate the intra-regional impact and at the national level to estimate the inter-regional spillover effects across Italy. My findings show that the intra-regional effects are almost two times the inter-regional effects. Almost 51% of the inter-regional impact on value-added accrues to Northern regions, 22% to the Central regions, while about 27% spills over to the regions in Southern Italy. This evidence clearly shows a good degree of connection between the Apulia local economy with the macro-regions of Northern Italy, while it is quite weak with the macro-regions in Southern Italy. Finally, the third chapter, which is also my Job Market Paper (JMP) titled “Investments in green projects and value-added GDP: an environmentally integrated multiregional SAM approach”, presents an integrated methodology to simultaneously estimate the socioeconomic and environmental impacts of NGEU regional investments of around €1981 million on labor markets, value-added, and household consumption. I construct a novel dataset and then implement an environmentally integrated multiregional social accounting matrix (EI-MRSAM) technique to analyze the impact of the regional investments within the Lombardy region, and across Italy. I find that Lombardy’s intra-regional investment impact on value-added (GDP) share accounts for almost 78%, while 22% accrues to the rest of Italy in terms of interregional value-added spillover effects through trade channels. The total investment impact on both regional and national economies decreases by around 10% in terms of value-added after internalizing the environmental costs of climate change damages induced by industrial GHG emissions. In addition, I conduct a counterfactual macro-policy evaluation of an endogenous increase by 25% of the baseline NGEU investments to each of the thematic missions which represents the key thematic areas of the public policy interventions. I find that the return on investments in digital transformation of the Italian public-administration is more efficient in terms of potential regional value-added growth compared to other counterfactual outcomes. The investment impact on household consumption expenditures and induced GHG emissions are also consistent with those of value-added.