International Climate Aid and Trade

Aide Climatique Internationale et Commerce

Basak Bayramoglu, Jean-François Jacques, Clément Nedoncelle and Lucille Neumann-Noel ()
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Lucille Neumann-Noel: UMR PSAE - Paris-Saclay Applied Economics - AgroParisTech - Université Paris-Saclay - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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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 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-ene, nep-env and nep-int
Note: View the original document on HAL open archive server: https://hal.inrae.fr/hal-03833067
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Journal Article: International climate aid and trade (2023)
Working Paper: International climate aid and trade (2023)
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