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Greening thy Neighbour: How the US Inflation Reduction Act Drives Climate Finance Globally

Author

Listed:
  • Daniel Marcel te Kaat
  • Alexander Raabe
  • Yuanjie Tian

Abstract

Using granular data on global investment funds in difference-in-differences regressions around the announcement of the US Inflation Reduction Act (IRA), we identify a novel international spillover channel of green industrial policies. Sustainable global investment funds received more inflows upon the act announcement, in turn increasing their cross-border portfolio investments worldwide. Recipient economies better prepared to address climate change benefited most from sustainable global funds' additional investments. Our results are stronger for funds with a larger portfolio share invested in the US and in IRA-targeted industries. Yet, we see strong international spillovers even for non-US domiciled sustainable funds investing entirely outside the US. Thus, global investment funds have become an important conduit for the international spillover of climate policies.

Suggested Citation

  • Daniel Marcel te Kaat & Alexander Raabe & Yuanjie Tian, 2025. "Greening thy Neighbour: How the US Inflation Reduction Act Drives Climate Finance Globally," CAMA Working Papers 2025-46, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2025-46
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    File URL: https://crawford.anu.edu.au/sites/default/files/2025-08/46_2025_teKaat_Raabe_Tian.pdf
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    JEL classification:

    • F3 - International Economics - - International Finance
    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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