Exchange Rate Regimes and Green Capital Inflows: Evidence from Staggered Regime Transitions in Developing Countries

Integrating into the green global production network requires developing countries to attract substantial green capital inflows, a process heavily dependent on domestic exchange rate policies. We analyze how transitioning to a floating regime affects international renewable energy investments using a staggered difference-indifferences approach for causal inference. Our findings reveal that transitioning to a floating exchange rate regime can significantly boost international renewable energy investments. These benefits are highly conditional to credible transitions sustained for at least three years, while transient policy shifts fail to attract investments and instead induce green capital flight. Ultimately, our findings underscores that credible exchange rate flexibility can serve as a mechanism for scaling up green capital inflow, provided the policy is structurally durable.