Climate finance, international trade and inclusive growth in Africa

This paper seeks to contribute to the ongoing efforts by investigating how climate finance and international trade interact to influence inclusive growth through simultaneous equation systems. The study employs static and dynamic econometric models for a panel dataset of 54 African economies from 2004 to 2022. Three new results are uncovered. First, we provide evidence to support a bi-causal relationship between climate finance and international trade. We show that the diverse relationship between climate finance and international trade has important implications for policy and theory. Second, we find that climate finance is good for inclusive growth. However, the results show that intra-African trade positively affects inclusive growth, while inter-trade has an inverse effect on inclusive growth. Third, the new evidence supports the argument that the positive impact of climate finance on inclusive growth is strongly magnified when African economies trade with the global economy compared with intra-African trade. Overall, the findings of this study have important policy implications.