Impact of the Clean Development Mechanism on Host Countries: The Relevance of Absorption Capacities

Abstract

This paper aims to apply the theoretical framework of the FDI literature to the CDM case when dealing with host countries absorption capacities. The absorption capacities could be defined as the conditions that would ease the integration of the investments and, thus, provide greater benefits for the host country. Therefore, they can be considered as the determinants that would optimize the positive spill-over effects. Three models try do define the links that might occur between host country absorption capacities and the issuance of CERs. The first provides details on the determinants that promote greater positive spill-over effects. The second and the third study the absorption capacities that would induce a greater increase of those effects. For the estimation of these models, four datasets for the sample period 2004-2010 are applied: one encompassing all the concerned countries, one including only the major CERs emitter countries (with and without China) and one focusing only on the small CERs emitter countries. On the basis of the estimations also a comparison is drawn between the particularities of FDI and CDM financial flows.