Does development assistance reduce climate vulnerability in developing countries? an empirical investigation

ABSTRACT

Increasing climate vulnerability in developing countries impedes inclusive and sustainable development. The paper examines the linkages between official development assistance (ODA) and climate vulnerability while analysing the mediating role of adaptation readiness in 119 developing countries using a panel correlated standard error estimator. The study also investigates the relationship between ODA’s sectoral composition and climate vulnerability. The findings reveal that ODA is positively associated with climate vulnerability across all models and regions. However, ODA disbursement according to governance readiness criteria is associated with low vulnerability. The sectoral analysis reveals that the share of social infrastructure, humanitarian, and debt assistance is more in highly vulnerable countries. In contrast, these countries receive less aid specific to production, economic infrastructure, and multi-sector, and donors commit most climate-related ODA in these sectors. Overall, findings suggest a lack of adaptation mainstreaming into ODA disbursements. Furthermore, it calls for exploiting unexplored opportunities for vulnerability reduction through ODA in those sectors where the share of ODA is high in vulnerable countries.

KEYWORDS:

• Foreign assistance
• climate change
• vulnerability
• government policy
• sectoral aid

GEL CLASSIFICATIONS:

• F35
• Q54
• Q56
• Q58

Acknowledgement

Authors gratefully acknowledge the useful comments and suggestions of the reviewers on several drafts of the manuscript. Authors also acknowledge the comments and suggestions received from the seminar participants, on an earlier version of the paper presented in the 25th European Association of Environmental and Resource Economists (EAERE) annual conference (online) held in Berlin during 23 June to 3 July, 2020.

Data availability statement

The data that support the findings of this study are available from the corresponding author upon reasonable request.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 IPCC (2007, 2022) defines exposure as the “presence of people, livelihoods, species or ecosystem, environmental functions, services and resources, infrastructure, or economic, social, or cultural assets in places and settings that could be adversely affected”.

2 Sensitivity as the “degree to which a system or species is affected, either adversely or beneficially, by climate variability or change.” Exposure focuses on probable future stress due to climate changes, whereas sensitivity reflects the current state of stress, which may be due to the topographical and demographical factors (IPCC, 2007, 2022).

3 Adaptive capacity is the ability of the system, institutions, humans, and other organisms to adjust to potential damage, to take advantage of opportunities, or to respond to consequences (IPCC, 2007, 2022)

4 We have extracted the figures of climate -related ODA based on Rio-marker from donortracker.org. Available at: https://donortracker.org/insights/financing-future-climate-finance-and-role-oda.

5 To conduct sectoral analysis, we adopt OECD classification codes as these are the broad sectors in which recipients receive aid from donors. However, it is argued that the adaptation-specific component of ODA for each sector might be challenging to quantify as adaptation finance can be integrated across all these sectors to a certain extent (OECD D., 2016). Although using Rio marker is suggested as an alternative way to segregate adaptation finance from ODA, it is not recommended as a reliable source for measuring adaptation finance (Weikmans et al., 2017). Moreover, our study considers ODA disbursement from all sources since 1995, unlike available data in the Rio marker, which provides complete data only on bilateral adaptation aid commitments since 2010.

6 The different criteria mentioned in Calleja (2021) is based on the review of project selection documents that donors use while selecting climate related projects rather than selecting a country for climate-related funding.

Additional information

Notes on contributors

Panika Jain

Panika Jain is a doctoral student in economics in the department of Humanities and Social Sciences, Indian Institute of Technology Ropar. Her research interests include environmental economics, energy economics and climate finance.

Samaresh Bardhan

Dr Samaresh Bardhan is an associate professor of economics at department of Humanities and Social Sciences, Indian Institute of Technology Ropar. Dr Bardhan works in the area of banking, credit related issues, environmental economics, energy economics and other broad issues of development economics.