Does Mexico Benefit from the Clean Development Mechanism? A Macroeconomic and Environmental General Equilibrium Analysis

Since 2000, the Clean Development Mechanism (CDM) under the Kyoto Protocol has included southern countries in the fight against climate change by encouraging northern countries to make environmentally friendly direct investments at the lowest cost in these developing nations. Even if CDM investments have enjoyed great success, the question of how host countries benefit from these investments seems insufficiently explored. Therefore, this article offers a quantitative assessment of the economic and environmental impacts of CDM investments for the specific case of Mexico. We use a computable general equilibrium model that features environmental topics, to simulate the demand and supply effects induced by these investments. Numerical simulations reveal the growth potential and important fund of development that represents the CDM for Mexico, though the environmental impact appears broadly mixed.