Template-Type: ReDIF-Paper 1.0
Author-Name: José Aurazo
Author-X-Name-First: José
Author-X-Name-Last: Aurazo
Author-Name: Rafael Guerra
Author-X-Name-First: Rafael
Author-X-Name-Last: Guerra
Author-Name: Pablo Tomasini
Author-X-Name-First: Pablo
Author-X-Name-Last: Tomasini
Author-Name: Alexandre Tombini
Author-X-Name-First: Alexandre
Author-X-Name-Last: Tombini
Author-Name: Christian Upper
Author-X-Name-First: Christian
Author-X-Name-Last: Upper
Title: Environmental factors and capital flows to emerging markets
Abstract: This paper examines the impact of environmental factors on international capital flows – specifically portfolio, bank, and foreign direct investment (FDI) inflows – to emerging market economies (EMEs). Using two complementary approaches, we first analyse how recipient country factors influence capital flows for 21 EMEs, finding that EMEs with lower exposure to extreme weather events, a greener energy mix, more and stronger climate-related policies tend to attract greater capital inflows. Second, using bilateral data for FDI and bank flows, we explore the role of sending country factors (advanced economies, AEs) in determining capital inflows to EMEs. The results suggest that stricter environmental regulations in AEs lead to increased capital inflows to EMEs with weaker green regulations. This suggests an "emission shifting" effect. At the same time, though, they also route more investment to EMEs with a greener energy mix. These findings underscore the significance of environmental factors in shaping international capital flows.
Creation-Date: 2025-11
File-URL: https://www.bis.org/publ/work1308.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1308.htm
File-Format: text/html
Number: 1308
Keywords: environmental factors, capital flows, emerging markets, energy mix
Classification-JEL: F21, F23, F64
Handle: RePEc:bis:biswps:1308