Sensing the Heat: Climate Change Vulnerability and Foreign Direct Investment Inflows

28 Pages Posted: 9 Nov 2022

See all articles by Falik Shear

Falik Shear

National Textile University

Badar Nadeem Ashraf

London South Bank University

Shazaib Butt

University of East London

Abstract

We investigate whether climate change vulnerability determines foreign direct investment (FDI) inflows. We reason that multinational firms foresee a higher climate change vulnerability of host-country a locational disadvantage while making FDI allocation decisions. Consistent with our expectation, we evidence that FDI inflows are lower in countries that are more vulnerable to climate change. In further analysis, we observe FDI inflows are only sensitive to climate related risks in high- and middle-income countries, but not in low-income countries where the market size is a main driver of FDI inflows. Moreover, we also find that host countries may weaken the adverse effects of climate change vulnerability on FDI inflows by strengthening economic, institutional and social environment.

Keywords: climate change, Vulnerability, Readiness, FDI inflows

Suggested Citation

Shear, Falik and Ashraf, Badar Nadeem and Butt, Shazaib, Sensing the Heat: Climate Change Vulnerability and Foreign Direct Investment Inflows. Available at SSRN: https://ssrn.com/abstract=4272457

Falik Shear

National Textile University ( email )

NTU sheikupura road faisalabad
Faisalabad
Pakistan

Badar Nadeem Ashraf (Contact Author)

London South Bank University ( email )

103 Borough Road
London, Greater London SE1 OAA
United Kingdom

Shazaib Butt

University of East London ( email )

Longbridge Road
Dagenham, Essex, RM8 2AS
United Kingdom

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