International Climate Finance, Spatial Spillovers, and Carbon Intensity

Climate finance may influence carbon emissions beyond the countries that receive it. In this regard, this study analyzes the spatial effects of climate finance on CO₂ emissions per unit of GDP, considering both short- and long-run dynamics. Using a balanced panel of 128 countries over 2010–2019 and a dynamic spatial Durbin model, we find a negative and statistically significant association between climate finance and carbon intensity. The results indicate both direct domestic effects and indirect spatial effects, with larger estimates in the long run than in the short run. Portfolio composition also matters. Mitigation finance shows clearer and more systematic associations with lower carbon intensity than adaptation finance. In addition, the results vary across income groups: The estimates are weak in low-income countries, stronger in lower-middle- and upper-middle-income countries, and more concentrated in direct domestic effects among high-income economies. These findings highlight the spatial dimension of climate finance and show that portfolio composition and country context shape its association with emissions.