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Blue, green or red? A 'rainbow' stimulus to tackle global recession

Written by Dirk Willem te Velde

This Opinion argues for a 'rainbow' fiscal stimulus to help developing countries cope with the global financial crisis. Such a stimulus would combine the best of economic and political ideologies: the blue of conservatism and market forces; the green of environmental sustainability and the red of state interventionism. It gives three key reasons why the developed world should support such a stimulus for developing countries:

First, the crisis has been caused by failures in developed countries. In addition, the benefits of higher growth in the developing world will be felt in developed countries. Second, countries such as the US and UK have suffered a period of over–consumption, accumulating large debts. It may be that a fiscal stimulus will have less impact in these countries, where additional resources may be used by households to pay back debt, and will work better in the developing world. Third, if the poorest countries are unable to put in place a fiscal stimulus, while other richer countries do so, they will suffer from a kind of beggar-thy-neighbour economic nationalism.

The Opinion concludes that developed countries should provide a rainbow stimulus for developing countries, including more aid for trade, investment in infrastructure, support for green growth and improved social protection.