The geographic distribution of the economic impact of climate finance

Current estimates at global level put the investments required to address climate change at around 1.3 trillion dollars per year in the coming decades. Most developing countries face financial constraints (public as well as private) and significant additional costs imposed on their development by the impacts of climate change. In the framework of international climate negotiations, industrialised countries have committed to assist financially developing countries in this effort. Indeed, a specific fund (the Green Climate Fund) has been created to channel climate finance from donor to developing countries. This paper contributes to the literature dealing with climate finance allocation. In particular, we study the global distribution of the economic impacts associated with these financial flows linked to 17 different mitigation options and nine adaptation options using a Global Multi-Regional Input-Output model. This methodological framework enables us to broaden the scope of analysis of the economic impacts of climate finance beyond the boundaries of the host country, and to capture the impacts generated in third countries through international trade. The results confirm the relevance of spill-over effects generated by climate finance, which account for (on average) 29% of the total impact. But the volume of spill-overs varies significantly depending on the type of climate action that is financed and the country that receives the funds. Therefore, international spill-overs are an aspect that countries might take into account when making decisions and negotiating about climate finance allocation, because they determine the distribution of economic gains associated to climate action.