Does classification of green aid flows matter for environmental quality?

Abstract

Climate change imposes an existential threat on the globe and has already had sizeable economic costs to countries. Environmental aid flows aim to alleviate the rising concerns of climate change in the developing world. Even though the existing literature has examined the effectiveness of green aid flows for reducing carbon dioxide emissions in the recipient countries, no existing study has examined the effectiveness of different classifications of green aid. Examining the green aid flows to 97 developing countries between 2002 and 2018, we find that all types of green aid significantly reduce carbon dioxide emissions; however, the aid flows targeting the environmental objectives are more effective in reducing carbon dioxide emissions compared to the aid flows that do not target environmental objectives or are not screened. The findings highlight that more aid should be screened and targeted for environmental objectives to increase the effectiveness of green aid flows in developing countries.