What determines the magnitude of the economic impact of climate finance in recipient countries?

The research uses Structural Decomposition Analysis (SDA) and a global multi-regional input-output framework to examine how value-added creation from climate finance is distributed between recipient and donor countries. It identifies four primary drivers of economic impact: value-added intensity (VAiE), domestic multiplier (DME), foreign multiplier (FME), and trade structure (TSE). The study finds that Brazil and India are often benchmarks for retaining local benefits, while the USA and Japan are benchmarks for capturing spillovers, with results varying by the type of climate action (e.g., renewable energy vs. adaptation).

• The economic impact of climate finance is determined by four main factors: the value-added intensity effect (VAiE), which relates to value-added per unit of domestic output; the domestic multiplier effect (DME), reflecting domestic production per unit of domestic demand; the foreign multiplier effect (FME), reflecting domestic production per unit of foreign demand; and the trade structure effect (TSE), which relates to the share of domestic production in final demand.
• Among the recipient countries studied, Brazil is the benchmark for the largest domestic impact in solar energy, building insulation, and adaptation projects, primarily driven by the value-added intensity effect (VAiE).
• India serves as the benchmark for the largest domestic impact in wind and hydropower projects, largely because it imports fewer final products for these projects and possesses a high degree of industrial self-sufficiency.
• China's lower ability to retain the economic impact of climate finance compared to benchmarks is primarily due to a lower weight of labour and capital in its total production costs, as evidenced by the value-added intensity effect.
• Indonesia and Mexico experience lower domestic impacts than benchmarks due to a combination of high dependence on imports for final demand and lower domestic production generation in key sectors like metals.
• For donor countries, the USA is the benchmark for capturing spillovers when Mexico is the recipient, a result driven by geographical proximity, trade treaties like NAFTA, and the USA's strong position in global supply chains.
• Japan is the benchmark for capturing spillovers when China is the recipient country, which the authors attribute to the effect of geographical proximity on trade.

APA

Román, M. V., Arto, I., & Ansuategi, A. (2016). What determines the magnitude of the economic impact of climate finance in recipient countries? Basque Centre for Climate Change. https://www.bc3research.org/h6T8Uy8Nm4gFs0O/201603021133451305130986.pdf

Chicago

Román, María Victoria, Iñaki Arto, and Alberto Ansuategi. What determines the magnitude of the economic impact of climate finance in recipient countries? Basque Centre for Climate Change, 2016. https://www.bc3research.org/h6T8Uy8Nm4gFs0O/201603021133451305130986.pdf.

Wikipedia

{{cite report |last1=Román |first1=María Victoria |last2=Arto |first2=Iñaki |last3=Ansuategi |first3=Alberto |title=What determines the magnitude of the economic impact of climate finance in recipient countries? |publisher=Basque Centre for Climate Change |date=February 2016 |url=https://www.bc3research.org/h6T8Uy8Nm4gFs0O/201603021133451305130986.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{romn2016what, author = {Román, María Victoria and Arto, Iñaki and Ansuategi, Alberto}, title = {{What determines the magnitude of the economic impact of climate finance in recipient countries?}}, institution = {Basque Centre for Climate Change}, year = {2016}, month = feb, url = {https://www.bc3research.org/h6T8Uy8Nm4gFs0O/201603021133451305130986.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }