More than money: does climate finance support capacity building?

ABSTRACT

Effective capacity building is vital for developing countries to enable them to contribute to global efforts to mitigate climate change and adapt to its consequences. This letter provides first empirical evidence on the impact of climate finance on institutional capacity in recipient countries. Using data from the Global Environment Facility (GEF) and a World Bank index, we find a robust positive relation for sub-Saharan Africa from dynamic panel data estimation whereas no such effect is detected across remaining sample countries. While focusing on identification, however, our analysis should be seen as an initial piece of the puzzle. In light of the abundance of different capacity building concepts and definitions in the field of climate change future research is needed to understand the underlying mechanics.

KEYWORDS:

• Climate finance
• climate fund
• Global Environment Facility
• institutional capacity

JEL CLASSIFICATION:

• C33
• F33
• O43
• O44

Disclosure statement

No potential conflict of interest was reported by the authors.

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Notes

¹ We do not limit our analysis to (selected) capacity-building initiatives, but include the full portfolio of projects addressing climate change.

² More specifically, we use the sum of markers for ‘Rio Conventions’ and ‘Environment’. Data are collapsed across donors for individual recipient countries. Importantly, as donors can mark ODA for several principle objectives, the OECD data are known to contain double-counting. Separating ODA by objective would address this issue. However, this would drastically reduce observations used for estimation as some sample countries have never received ODA earmarked for mitigation or adaptation. Estimation results are nevertheless not altered by either incorporating or excluding aggregate ODA (reduced model results available upon request).

³ While it is beyond the scope of this letter to provide a precise causal analysis of regional disparity, other explanations may include differences in implementing agencies, financial instruments, external finance dependency, and, especially, project design and objective. Moreover, multiple-country projects could generate regionally concentrated capacity-building synergies.

⁴ Based on current GDP in 2011 (median sample year), we define the 27 countries with the lowest income (1/3 in total) as small economies.

Additional information

Funding

This work was supported by the German Federal Ministry for Economic Cooperation and Development (BMZ).