 Importing innovation or indigenous innovation: Evaluating the effect of climate finance on promoting environmental sustainability in developing countriesJinhua Zhang, Yafei Li, Ruonan Du and Xiuping Hua Energy Economics, 2025, vol. 149, issue C Abstract: This paper examines the influence of climate finance on the CO2 emissions and explores the underlying mechanisms from the perspectives of external and indigenous innovations, with a cross-country panel dataset encompassing 140 developing countries from 2002 to 2022. The results indicate that climate finance has a negative and significant impact on CO2 emissions. Specifically, a one-standard-deviation increase in climate funds correlates with an approximate 3.31 % reduction in per GDP CO2 emissions. However, heterogeneity analysis reveals that in the least developed countries, climate finance does not significantly reduce carbon emissions and, in some cases, may even enhance the carbon emissions. Mechanism analysis suggests that climate finance promotes environmental sustainability by introducing external innovation rather than promoting indigenous innovation in developing countries. These results shed new light on the pollution halo hypothesis in developing nations. Keywords: Climate finance; Carbon emission; Importing innovation; Indigenous innovation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:149:y:2025:i:c:s0140988325005535 DOI: 10.1016/j.eneco.2025.108726 Access Statistics for this article Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant More articles in Energy Economics from Elsevier |
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