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International climate aid and trade

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

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.

Suggested Citation

  • Bayramoglu, Basak & Jacques, Jean-François & Nedoncelle, Clément & Neumann-Noel, Lucille, 2023. "International climate aid and trade," Journal of Environmental Economics and Management, Elsevier, vol. 117(C).
    • Handle: RePEc:eee:jeeman:v:117:y:2023:i:c:s0095069622001012
    DOI: 10.1016/j.jeem.2022.102748
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    More about this item

    Keywords

    Climate aid; Trade; Transfers; Mitigation; Adaptation;
    All these keywords.

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • F18 - International Economics - - Trade - - - Trade and Environment
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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