Does Climate Change Affect Firms’ Innovative Capacity in Developing Countries?

Bao-We-Wal Bambe, Jean-Louis Combes, Pascale Motel Combes () and Chantale Riziki Oweggi

No 2024/0312, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: We investigate the impact of climate change on firms’ investment in research and development (R&D) in developing countries. The paper relies on two contrasting hypotheses. In the first hypothesis, we speculate an optimistic situation where climate change could induce firms to spend on R&D to both reduce their environmental impact and curb the effects of future climate shocks. In the second hypothesis, we propose a pessimistic scenario where climate change would reduce firms’ incentives to invest in R&D. This second hypothesis would mainly be due to tighter conditions for access to finance from lenders, given the increased uncertainty about the firm’s future returns in the face of climate change. The empirical results support the second scenario, small firms being more severely affected. Furthermore, we examine the underlying mechanisms and identify financial access as the key channel through which climate change reduces R&D investment.

Keywords: Climate; change; •; Firm; innovation; •; Developing; Countries (search for similar items in EconPapers)
JEL-codes: D22 O3 Q54 (search for similar items in EconPapers)
Date: 2024-02
New Economics Papers: this item is included in nep-agr, nep-dev, nep-env, nep-fdg, nep-sbm and nep-tid
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Related works:
Working Paper: Does Climate Change Affect Firms’ Innovative Capacity in Developing Countries ? (2023)
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