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International climate aid and trade

Basak Bayramoglu, Jean-François Jacques, Clément Nedoncelle and Lucille Neumann-Noel

Journal of Environmental Economics and Management, 2023, vol. 117, issue C

Abstract: Foreign aid allocation by donor countries to developing economies is known to be motivated by the donor country’s bilateral trade interests. Does this apply also to bilateral climate aid? In this paper, we combine theoretical and empirical analyses to investigate how bilateral trade affects donor countries’ allocations of bilateral climate aid. Our theoretical analysis develops a simple model to support our hypothesis that bilateral trade has a positive impact on climate aid transfers. The model highlights the terms-of-trade and positive income effects of climate aid, and predicts a positive relationship between donor countries’ exports to and imports from recipient countries and their climate aid transfers. The empirical analysis is based on bilateral climate aid data for 2002 to 2017. We employ fixed effects and instrumental variable-2 stage least square estimations (IV-2SLS) with a shift-share instrument to overcome the endogeneity of trade. Our empirical results show that donors’ exports have a significant, robust, positive effect on climate aid transfers.

Keywords: Climate aid; Trade; Transfers; Mitigation; Adaptation (search for similar items in EconPapers)
JEL-codes: F18 F35 Q58 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: International climate aid and trade (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:117:y:2023:i:c:s0095069622001012

DOI: 10.1016/j.jeem.2022.102748

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Journal of Environmental Economics and Management is currently edited by M.A. Cole, A. Lange, D.J. Phaneuf, D. Popp, M.J. Roberts, M.D. Smith, C. Timmins, Q. Weninger and A.J. Yates

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