Policies to foster green FDI: evidence from emerging markets and developing economies

Abstract While the willingness of advanced economies to provide climate finance is important, emerging markets and developing economies can also take the initiative. Combining econometric analysis and country-level case studies, we show that there are three major types of green foreign direct investment (FDI) and determine the unique policy approach required to increase each type. For renewable energy, successful countries have developed a policy portfolio to remove barriers, establish an institutional framework and ensure revenue for investors. Green hydrogen and electric vehicles are recent technologies for green FDI. Success factors for these technologies were active coordination with investor countries and a comprehensive national strategy for the respective technology. We also show that countries target the type of technology in which they have a comparative advantage. Finally, fundamentals matter: countries with higher levels of trade and capital account openness, better institutional quality, and more abundant skills received larger green FDI flows.