How do Climate Shocks Affect the Impact of FDI, ODA and Remittances on Economic Growth?
IMF Working Papers, July 23, 2021
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- How do Climate Shocks Affect the Impact of FDI, ODA and Remittances on Economic Growth?
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Bibliographic details
- Authors: Alassane Drabo
- Published: July 23, 2021
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513585635.001
Research question and approach
- Examines whether climate shocks undermine the effects of Foreign Direct Investment (FDI), official development assistance (ODA), and migrants’ remittances on economic growth in developing countries.
- Theoretical framework: neoclassical growth model indicating that FDI, ODA, and remittances improve economic growth and that the size of the effect increases with good absorptive capacity; climate shocks reduce this positive effect.
- Empirical approach: sample of low and middle-income countries from 1995 to 2018 to test theoretical predictions.
Key empirical findings
- FDI, ODA, and remittances have positive effects on economic growth in the theoretical model and empirical tests confirm these positive effects.
- The magnitude of the positive effects of FDI, ODA, and remittances increases with better absorptive capacity.
- Climate shocks reduce the positive effect of these financial inflows on economic growth in developing countries.
- Empirical confirmation is based on data covering low and middle-income countries from 1995 to 2018.
Policy implications and recommendations
- Developing countries should build strong resilience to climate change.
- Global action is needed to reduce greenhouse gases emissions.
- Build strong structural resilience to climate shocks, especially in developing countries.
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