Climate Policies as a Catalyst for Green FDI

March 1, 2024

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Format: Chicago

Samuel Pienknagura. Climate Policies as a Catalyst for Green FDI, (USA: International Monetary Fund, 2024) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper assesses the role of climate policies as a catalyst of low carbon technologies deployment through foreign direct investment (FDI). Leveraging detailed cross-border project-level information, it identifies “green” FDI and finds that a higher number of active climate policies is associated with higher levels of green FDI inflows. Importantly, climate policies do not appear to be linked to lower levels of non-green projects, suggesting relatively small overall costs from the green transition. The paper also finds heterogeneity across sectors and policy instruments. The association between climate policies and green projects is particularly strong in energy and manufacturing, and when the composition of the recipient's climate portfolio is tilted towards binding policies (e.g., taxes and regulation) and expenditure measures. Finally, results point to policy spillovers, whereby larger climate policy portfolios in the source country are linked to higher green FDI outflows, but green subsidies can discourage them. This, in turn, implies that subsidies could hamper efforts to deploy low-carbon technologies across countries.

Subject: Balance of payments, Climate change, Climate policy, Environment, Foreign direct investment, Greenhouse gas emissions, Tariffs, Taxes

Keywords: Climate change, Climate policies, Climate policy, FDI, FDI inflow, FDI outflow, Foreign direct investment, Global, Green FDI, Greenhouse gas emissions, Low carbon technologies, Policy instrument, Policy spillover, Renewable energy, Tariffs

Publication Details

Pages:

44
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2024/046
Stock No:

WPIEA2024046
ISBN:

9798400269448
ISSN:

1018-5941

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