If, over the remainder of this decade, each economy raised its investment growth rate by as much as its largest increase over any ten-year interval in 2000-21, investment would rise by 5.2 percentage points of GDP globally and by 7.4 percentage points of GDP in EMDEs over the course of 2022-30.<sup>12</sup> Such an investment boost would raise global potential growth during 2022-30 by 0.3 percentage point per year above its 2011-21 average, almost reversing the 0.4 percentage point slowdown from 2011-21 in the baseline scenario (figure 9). EMDE potential growth would rise by 0.4 percentage point a year, reversing almost half of the slowdown from 2011-21 in the baseline.<sup>13</sup> Over the course of 2022-30, these higher growth rates would cumulate to increase potential output in 2030 by 3.3 percent globally and 3.5 percent in EMDEs relative to the baseline.

A package to adapt to, and mitigate, climate change could be part of such an investment push. To limit climate change to 2°C and stay on track to achieve infrastructure-related sustainable development goals, Rozenberg and Fay (2019) estimated that EMDEs needed to raise infrastructure investment by 1.1-3.5 percent of GDP per year just to meet flood protection goals and climate goals in the area of renewable power generation. Most of this would be needed to improve renewable energy supply and energy efficiency, to adopt appropriate standards of coastal protection for cities, and to address increased risks from river floods.

Estimates of investment needs for climate change have spanned a wide range. The World Bank’s Country Climate and Development Reports estimate the additional need for infrastructure investment for 13 countries (Argentina, China, Egypt, Ghana, Iraq, Jordan, Kazakhstan, Morocco, Peru, Philippines, South Africa, Türkiye, and Vietnam). The average of these 13 estimates is 2.3 percent of GDP per year—an estimate that is also around the average of the broader literature review shown in Stamm and Vorisek (2023). Region-specific climate needs are assumed to be distributed across six regions based on the regional distribution in Rozenberg and Fay (2019). An investment boost of this magnitude could raise global potential growth by 0.1 percentage point, EMDE potential growth by 0.2 percentage point, and potential growth in advanced economies by 0.1 percentage point (figure 10).

12 Since the investment surge is assumed to cumulate gradually over the period 2022-30, the increase in annual average investment growth over 2022-30 (shown in figure 8) is less than the cumulative increase over the whole period.

13 This impact lies within the range of other estimates. For example, China’s 16 percentage points of GDP expansion of infrastructure investment between 2002 and 2016 (about three times the magnitude of the thought experiment conducted in our study) has been estimated to have raised output growth by 0.8-2.3 percentage point per year (Dinlersoz and Fu 2022). The lower bound of this range is broadly in line with the estimate derived in our study. That said, cross-country estimates yield somewhat larger impacts. For example, estimates by Abiad, Debuque-Gonzales, and Sy (2018) suggest that a 5 percentage point of GDP increase in infrastructure investment in almost 100 EMDEs during 1960-2017 was associated with up to 6 percentage point higher output after 7 years, or 0.9 percentage point per year on average.