From policy to practice: What drives climate orientation in development finance flows?

Hardik Gupta and Raveendra Saradhi Vadlamudy

Journal of Policy Modeling, 2025, vol. 47, issue 6, 1344-1371

Abstract: As climate considerations become integral to the global development agenda, it is essential to examine how they are incorporated into cross-border development finance architecture. This study investigates the determinants of climatic orientation in Official Development Finance (ODF) using a granular dataset of 108,580 financial flows to Southeast Asia from 2015 to 2022. Integrating transaction, recipient and donor-level attributes, a multilevel logistic regression model has been utilised to account for unobserved heterogeneity resulting from the cross-classified structure of the data. Our findings suggest that larger ODA flows structured as loans are more likely to be climate-oriented. Recipient climate vulnerability and emissions intensity are positively associated with climate orientation, while institutional capacity exhibits mixed effects. Donor characteristics such as emissions levels, fiscal space, and democracy scores show positive associations, while governance quality exhibits a negative relationship, a finding driven mainly by non-traditional donors with lower governance scores but higher climate finance shares. Robustness checks confirm the stability of the results across alternative specifications, subsamples, and model structures. The analysis contributes to the literature by examining emerging policy discourse in light of empirical evidence and theoretical expectations. The study reveals that the inclusion of climatic considerations in developmental goals is shaped by a complex array of factors, with emerging donors playing an increasingly central role in reshaping the landscape. The analysis advocates for the adoption of an integrated approach to climate and development objectives to enable more effective utilisation of available resources.

Keywords: Bilateral Aid; Climate Action; Climate Finance; Climate Justice; Official Development Finance; Southeast Asia (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:47:y:2025:i:6:p:1344-1371

DOI: 10.1016/j.jpolmod.2025.09.008

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