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Climate and FDI

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Climate-related risks have increased in recent decades, both in terms of the frequency of extreme weather events (physical risk) and the implementation of climate-change mitigation policies (transition risk). This paper explores whether multinational firms react to such risks by altering their presence in countries that are more affected. We measure this by examining foreign direct investment (FDI) dynamics at different levels of aggregation as well as at the firm level. We propose a theoretical framework for firm production location choice that explicitly incorporates transition and physical risks. The model predicts a reduction in FDI resulting from both physical and transition risks but an ambiguous interaction effect of these risks with emission productivity. In an extensive empirical analysis, we find some support for model predictions, but overall we do not find consistent evidence for statistically significant effects of physical and transition risks on FDI. However, firm-level evidence suggests that firms that are more exposed to climate risks react more negatively to physical climate risk following Paris Climate Accord. We also find that FDI outflows following extreme weather events from affected countries are smaller for industries with higher emission productivity (greener industries). Our theory and empirical results point to the importance of accounting for heterogeneity in emission productivity when analyzing the effects of climate risks.

About the Speakers

Nagesh Kumar

Prof Nagesh Kumar is Director of the Institute for Studies in Industrial Development (ISID), a New Delhi-based policy think-tank of the Indian Council of Social Science Research (ICSSR), devoted to fostering India’s industrial transformation.

Prior to taking up this role in May 2021, Prof Kumar served as Director at the United Nations Economic and Social Commission of Asia and the Pacific (UNESCAP), holding several senior management positions during 2009-21 including as Chief Economist, Director of Macroeconomic Policy and Financing for Development Division and Social Development Division at the UNESCAP headquarters in Bangkok, and as Head of the South and South-West Asia Office located in New Delhi, that he also had the privilege of establishing.

Prof Kumar has also been nominated as the Non-Resident Senior Fellow by the Boston University Global Development Policy Centre (BU/GDPC), Boston, Mass; USA. During 2002-09, Dr Kumar served as the Director-General of the Research and Information System for Developing Countries (RIS), a policy think-tank of the Government of India, of which he was Deputy Director-General during 1998-2002, and a Fellow during 1985-93.

During 1993-98, Dr Kumar served as an Economist at United Nations University-MERIT (then UNU/INTECH) in Maastricht, the Netherlands.

Dr Kumar has also served on the boards of the Export-Import (EXIM) Bank of India, the International Centre for Trade & Sustainable Development (ICTSD), Geneva; the South Asia Centre for Policy Studies (SACEPS), Kathmandu. He has also served as a consultant to the World Bank, ADB, UNCTAD, UNDP, ERIA, Commonwealth Secretariat, DFID, ILO, UNIDO, and UN-DESA. Together with Late Dr Saman Kelegama of Sri Lanka, Dr Kumar co-founded the South Asia Economic Journal in 2000 (published by Sage), and the South Asia Economic Summits in 2008, both running successfully to date. He has also conceived and institutionalized the South Asia SDG Forums and the
South Asia Network on SDGs (SANS) under the auspices of UNESCAP.

Dr Kumar has researched extensively on different aspects of economic development, resulting in the publication of 18 books, over 30 flagship reports of United Nations and RIS, and over 120 peer-reviewed papers, attracting over 7500 academic citations on Google Scholar. A PhD in Economics from the Delhi School of Economics, Dr Kumar is the recipient of the Exim Bank's first International Trade Research Award in 1990, and Global Development Network (GDN) Research Medal awarded by the World Bank and the Japanese Government in Tokyo in 2000.

Galina Hale

Galina Hale (Borisova) is a Professor of Economics at UC Santa Cruz. Previously she served as a Research Advisor at the Federal Reserve Bank of San Francisco, and as an assistant professor of economics at Yale University. She also taught a number of courses as a visiting faculty at Stanford and UC Berkeley.

Galina began to study economics in Russia, first in the Moscow State University economics department and then at the New Economic School's master's program. When in Russia, she briefly worked as a consultant for the Russian Ministry of Finance and as a chief editor for a weekly newsletter of the Russian Central Bank's news agency. She received her Ph.D. in economics from UC Berkeley, under the supervision of Barry Eichengreen.

Galina’s current research interests focus on attracting mainstream finance to climate solutions, the sustainability of the global food system, and international financial stability, especially with respect to climate risks. Galina previously worked extensively on international capital flows and financial stability. Galina has published over 30 articles in leading economics and finance peer-reviewed journals such as the Economic Journal, Journal of Econometrics, Journal of European Economic Association, Journal of International Economics, Journal of Finance, Journal of Financial Economics, Journal of Banking and Finance, IMF Economic Review, Review of Financial Studies, among others. She co-wrote with Cheryl Long a monograph “Foreign Direct Investment in China: Winners and Losers.” Galina regularly presents her work at scholarly and policy meetings worldwide.

Galina currently serves as a co-editor-in-chief of the Review of the World Economies, co-editor of the Russian Journal of Central Banking, associate editor of the Journal of International Economics, and a member of the editorial board of the IMF Economic Review and Pacific Economic Review. She has co-edited special issues of the Journal of International Economics and of the IMF Economic Review. Galina is a director of the CEBRA's IFM program and a co-director of the UCSC Center for Analytical Finance (CAFIN). She serves on multiple boards and committees in the animal welfare and animal agriculture space.

Suma Athreye

Suma’s main research interests lie in the fields of Economics of Innovation and International Economics and she has published over 60 papers on these subjects and won several research grants for work in these areas. Suma’s current research looks at identifying the barriers to technology transfer from universities, the financing of R&D, understanding why the use of trade secrets is rising and the determinants of the demand for intellectual property instruments. In the area of International Economics, Suma is interested in the impulses for internationalisation and the use of internationalisation as a tool of technology search and technological acquisition by Indian and Chinese firms.

Suma is an area editor for the Journal of International Business Policy and serves on the Editorial Board of other academic journals: Research Policy, Industrial and Corporate Changes, Perspectives on Globalisation and Development, International Journal of Technological Learning; Innovation and Development and Multinational Business Review.

She has consulted to international policy bodies such as the World Intellectual Property Organisation and the European Commission. She was Rapporteur of the European Research Area (2008) report Opening to the world: International cooperation in Science and Technology and for the Joint Research Council’s (2016) report Approaches to and methods for evaluating new technologies in Technology Transfer Offices: How long is a piece of string? Most recently she collaborated with WIPO to produce the book Harnessing Public Research for Policies and draft A guide for universities on incentives for researchers Innovation in the 21st Century– An international Assessment of Knowledge Transfer to engage in IP and entrepreneurship activities. Since 2010, Suma has worked closely with the UK intellectual Property Office in order to strengthen their evidence base for policy. As part of this effort, the first report Patent Incentives: Returns to Patenting and the Inducement for Research & Development, summarised the evidence from existing data sources, while the second report, When do firms not use patents and trademarks to protect valuable innovations? built new evidence through a targeted innovation survey. Suma is also a member of the Research on Economics Advisory Group (REAG) of the UKIPO. Suma is currently on leave from the University of Essex where she has worked since 2016. She is a Fellow of the Royal Society of Arts and the Academy of Social Sciences, both based in the UK.