Impact of Climate Financing on Economic Development in Selected Sub-Saharan African Countries

Abstract

This paper examined the impact of climate financing on economic development in selected Sub-Saharan African countries, South Africa such as Kenya, Nigeria, Ethiopia, and Senegal, between 2009 and 2024. The paper employed a longitudinal research design and estimated a random effects regression model, guided by the outcome of the Hausman test. Findings revealed that Climate Equity Funds had a positive but statistically insignificant impact on economic development, indicating limited developmental effect in the selected countries, due to underdeveloped capital markets and high investment risks. Conversely, Climate Loans exhibited a positive and significant relationship with economic development, demonstrating that debt-financed climate interventions, when properly structured, could effectively support development in critical sectors. Climate Grants had the strongest and most significant effect on economic development, emphasizing the importance of non-repayable finance in supporting sustainable human development in vulnerable and low-income economies. Based on these findings, the paper recommended that institutions such as the African Development Bank and national financial regulatory agencies enhance capital market infrastructure to boost the effectiveness of Climate Equity Funds. It also advised that international lenders like the World Bank and IMF work with national debt management offices to structure concessional climate loans linked to human development targets. Lastly, the paper advocated for increased allocation and improved governance of Climate Grants by institutions like the Green Climate Fund and UNDP, while urging local ministries of environment and planning commissions to enhance implementation, transparency, and monitoring.