Does Climate Finance Really Affect Ecological Quality in Developing Countries? Fresh Evidence From the Method of Moments Quantile Regression Approach

Abstract

This study investigated the impact of climate finance on the ecological footprint (EF) of 111 developing countries from 2002 to 2018 to determine its real effects on ecological quality. The study applied the method of moments quantile regression (MMQR) to address nonnormality, individual heterogeneity of the EF and outliers. Additionally, the connection between climate finance and the EF is revisited, considering recipient countries' income diversity and the nature of climate finance. In addition, the analysis is repeated by splitting the sample periods into 2002–2009 and 2010–2018, subject to COP15. The results indicate that climate finance has negative and significant impacts on EFs across all quantiles (Q0.25, Q0.5, Q0.75 and Q0.9), inferring that climate finance robustly improves the ecological quality of developing countries. These findings further imply that mitigation finance has a robust effect on improving ecological quality across all distributions. In addition, adaptation finance has heterogeneous effects on EFs, positively impacting ecological quality at higher quantiles. Moreover, the effects of climate finance on ecological quality depend on income heterogeneity, having a negative effect on the EF of middle‐income countries and an insignificant effect on low‐income countries. The results further showed that the positive effects of climate finance on ecological quality became stronger after COP15. The findings are robust to alternative methods. Policy implications are suggested based on the findings.