Rethinking Green versus Conventional Investment Flows in BRIC Countries: Review of Emerging Trends and a Model for Future Research
Journal of Environmental Investing, Vol. 1, No. 2, 2010
27 Pages Posted: 8 Jun 2011 Last revised: 13 Jun 2014
Date Written: June 7, 2011
Abstract
The article explores the emerging trends and future potential for diverting capital flows from conventional to green activities in Brazil, Russia, India, China, Mexico, and South Africa (BRIC countries). At present, Chinese and Indian investors fund both environmentally unfriendly and green projects at a speedy pace, given these two countries’ high rates of gross fixed capital formation and general independence from external financial markets. By contrast, in Mexico, in South Africa, and especially in Brazil and Russia, environmentally sensitive projects to a considerable extent raise funds in the form of foreign loans. Meanwhile, in all BRIC countries except Russia, the bulk of green investment comes from domestic sources of funding.
While recognizing the accomplishments of the previous research on the subject, the article identifies deficiencies in the available data. The author uses generalizations of evidence from case studies to propose a model for future econometric testing. It is hypothesized that 1) the longer the time horizon of the investment institution is, the sounder the environmental profile of its investments; 2) the more stringent and predictable the environmental regulations in host economies are, the longer the investor’s time horizon is; 3) financial institutions with open and publicly accountable ownership structure have a longer-term orientation than those with closed and opaque ownership; 4) investors’ interest and expertise in diversification beyond environmentally unfriendly industries extend their time horizon.
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