Climate risk, climate policy and international capital flows: evidence from SADC countries

This study examines the impact of climate risk and climate policies on capital flows in Southern African Development Community (SADC) countries. Using data from 10 SADC countries spanning 2000 to 2022, we find that climate risk – proxied by extreme weather and climatic events – negatively affects aggregate international capital flows and their individual components: direct investments, portfolio investments and other investments. Similarly, the extensiveness of climate policies is associated with a decline in capital flows across all three categories. These inverse relationships persist whether international capital inflows or outflows are used as the dependent variable. The findings remain robust after addressing potential biases related to omitted variables, measurement issues, endogeneity and self-selection. This study offers important policy insights for SADC economies – a region highly vulnerable to climate change yet relatively under-researched.