Greening thy Neighbour: How the US Inflation Reduction Act Drives Climate Finance Globally

Daniel Marcel te Kaat, Alexander Raabe and Yuanjie Tian

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: Using granular data on global investment funds in difference-in-differences regressions around the announcement of the US Inflation Reduction Act (IRA), we identify a novel international spillover channel of green industrial policies. Sustainable global investment funds received more inflows upon the act announcement, in turn increasing their cross-border portfolio investments worldwide. Recipient economies better prepared to address climate change benefited most from sustainable global funds' additional investments. Our results are stronger for funds with a larger portfolio share invested in the US and in IRA-targeted industries. Yet, we see strong international spillovers even for non-US domiciled sustainable funds investing entirely outside the US. Thus, global investment funds have become an important conduit for the international spillover of climate policies.

Keywords: sustainable finance; climate policy; industrial policy; cross-border spillover; portfolio reallocation; portfolio capital flows; investment fund; Inflation Reduction Act (search for similar items in EconPapers)
JEL-codes: F3 G1 G2 Q5 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2025-08
New Economics Papers: this item is included in nep-eur and nep-ifn
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2025-46

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