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Adapting to climate risks through cross-border investments: industrial vulnerability and smart city resilience

Author

Listed:
  • Yao An

    (City University of Hong Kong
    Tsinghua University)

  • Ning Liu

    (City University of Hong Kong)

  • Lin Zhang

    (City University of Hong Kong
    City University of Hong Kong
    Center for Ocean Research in Hong Kong and Macau (CORE))

  • Huanhuan Zheng

    (National University of Singapore)

Abstract

Climate change entails potential risks for investors, and its effects on investment has spread beyond physical borders. This study investigates how multinational corporations (MNCs) incorporate climate risks into their decisions regarding foreign direct investments (FDIs). We find that large differences in the climate risks of home and host cities discourages FDI by increasing cross-border adaptation costs. Such impacts are particularly pronounced among environmentally sensitive industries that are more exposed to climate risks. Further analysis reveals that city-based smartness factors mitigate the negative impacts of climate risk differences on FDI by reducing adaptation costs and engendering new business opportunities. This study provides new evidence on the profound effects of climate risks on FDI and how smart cities can increase their resilience to climate risks in the context of international business.

Suggested Citation

  • Yao An & Ning Liu & Lin Zhang & Huanhuan Zheng, 2022. "Adapting to climate risks through cross-border investments: industrial vulnerability and smart city resilience," Climatic Change, Springer, vol. 174(1), pages 1-29, September.
    • Handle: RePEc:spr:climat:v:174:y:2022:i:1:d:10.1007_s10584-022-03431-x
    DOI: 10.1007/s10584-022-03431-x
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