Gauging the level of dynamic between climate policy and foreign aid in Vietnam

Abstract

Increasing foreign aid is a key strategy to assist developing nations in implementing financial policies to address the climate problem. Well-constructed aid programs can encourage the adoption of climate policies, but prospective advantages are not always realized, especially in the case of developing countries. Therefore, it is critical to conduct a more comprehensive study on the impact of climate aid on recipient countries' climate policy. We use a model-free connectedness approach to investigate interlinkages between climate policy and foreign aid, with a consideration of other variables like GDP and CO₂ emissions in Vietnam from 2000 to 2021. Our results highlight a two-way relationship between foreign aid and climate policy. The net total connectedness shows that climate policy is a main net recipient of shock waves, with the exception of the 2008–2010 and 2020–2021 periods. Foreign aid was the main net receiver of spillover shocks from 2010 to 2019. The direction of the net pairwise connectivity shows that the domination of foreign aid with climate policy peaked in 2018. The development process of climate policy in Vietnam faces many difficulties when foreign aid decreases. This paper's findings help policymakers and governments set up the framework for promoting the use of foreign aid to enhance the efficiency of climate policy to mitigate environmental degradation in Vietnam.