Climate Risk, Foreign Direct Investment and Private Participation Projects’ Profitability in Infrastructure Development

Abstract

The earth and its habitant are facing the consequences of climate change – manifested by capricious and frequently occurrence of extreme weather events i.e., wildfires, heatwaves floods, and droughts across the world. Although it has been established that climate risks have a negative impact on the execution and operations of the projects. But there is still a need to specifically investigate the effects of inevitable climate uncertainties on profitability of Private Participation Infrastructure (PPI) projects. Therefore, in this study, the impact of climate related uncertainties on the profitability of PPI projects, has been investigated. The moderating effects of the ownership of the host government has also been studied. In order to conduct the study, the PPI data set for the period of 2007 to 2019 published by World Bank has been utilized while techniques of Logistic & Ordinary Least Square (OLS) regression analyses have been used to carry out the study. The data pertaining to Global Climate Risk Index (CRI) prepared and issued by German watch has been utilized. Moreover, an analysis to investigate the impact of climate risks on FDI inflows has also been conducted for the region of South Asia particularly as the developing countries of this region are amongst the most affected countries due to climate risks or extreme weather events and FDI can play a crucial and vital role for economic growth of the developing countries of the region. It is evident from the results that profitability of the project is affected negatively due to climate risks. The climate risk has also adverse impact on FDI inflows. The ownership of the host government has not shown any moderating impact on the dependent variables in this study.