A study on the economic effects of climate assistance funds

This article examines the profound economic effects of climate assistance funds on developing countries, particularly small island developing states and least developed countries. It highlights the dual impact of these funds, initially dampening economic activity due to stringent environmental regulations but ultimately stimulating long-term economic growth through the development of renewable energy and energy efficiency technologies. The study employs a non-equilibrium growth model to demonstrate that climate assistance funds can significantly enhance economic development in recipient countries. Empirical analysis using data from 117 developing countries validates these findings, showing that technological innovation and financial development act as key mediators in this process. The article also explores the moderating effect of governance quality, revealing that improvements in governance facilitate the effective utilization of climate assistance funds, thereby enhancing economic growth. Additionally, it delves into the heterogeneous effects of different types of climate assistance funds, such as loans and grants, and their allocation across social development, economic development, and environmental protection sectors. The findings underscore the importance of strategic allocation and governance in maximizing the economic benefits of climate assistance funds, providing crucial insights for policymakers and stakeholders in the field of climate finance and sustainable development.