What determines the magnitude of the economic impact of climate finance in recipient countries? A structural decomposition of value-added creation between countries

International climate finance flows are increasing year after year, and will continue to increase in the future if the financial goal agreed in Copenhagen (USD 100 billion per year by 2020) is to be reached. Apart from the climate mitigation and adaptation benefits, these monetary flows generate economic impacts via the purchase of goods and services. Due to the role of international trade, impacts not only happen where climate finance is disbursed but in all economies involved in the production chain of purchased goods. Climate finance recipient countries have different abilities to retain locally the generated economic benefits. Climate finance donor countries differ also in their ability to capture the benefits of climate finance disbursed in other countries. This paper helps to understand the drivers of the differences between several recipient and donor countries. Results identify the most relevant drivers for each country, and those sectors where largest potentials to increase the economic benefits of climate finance are. This is a valuable input of information for the design of general national strategies and sectoral plans aimed at maximizing the synergies between climate action and economic development.