Effect of the Exchange Rate Regime on Climate Finance in Africa

Abstract: Despite its marginal contribution to greenhouse gas emissions, Africa is one of the continents most exposed to the consequences of climate change. These adverse effects of climate change are mitigated by public climate finance funds that facilitate the adaptation of African countries to climate change. This study aims to analyse the effect of the exchange rate regime on climate finance. Based on Clist's (2011) model, the study uses data from franc zone and non-franc zone countries over the period 2000-2001. The use of techniques for estimating long-run relationships yields two major results: in franc zone countries with a fixed exchange rate regime, the exchange rate has a positive impact on climate finance. In countries outside the franc zone with a flexible regime, the exchange rate has a negative effect on climate finance. Keywords: Climate Finance, Exchange Rate Regime, Integration JEL Classification Number: F31, F32, F35, Q56