Kling, Gerhard, Lo, Yuen C, Murinde, Victor and Volz, Ulrich (2025) Climate vulnerability and the cost of debt. Oxford Open Economics. ISSN 2752-5074 (In Press)
Full text not available from this repository.Abstract
We present the first systematic investigation of the impact of climate vulnerability on the cost of sovereign debt using a sample of 46 developing and advanced countries from 1996-2016. We find that a subgroup of 25 developing countries with higher exposure to climate vulnerability – all of which are members of the V20 climate vulnerable forum – exhibit, on average, a 1.174% higher cost of debt. We estimate that 40 members of the V20 paid USD 62 billion in additional interest from 2007-2016 due to their climate vulnerability. We also find that a measure of social readiness has a negative impact on bond yields, suggesting that social and physical investments in adaptation and resilience can help mitigate climate risk-related financing costs. Our findings indicate that climate vulnerability can threaten sovereign debt sustainability and cause financial exclusion, thereby undermining investment in adaptation and accelerating a vicious cycle of climate vulnerability, debt and underdevelopment.
| Item Type: | Article |
|---|---|
| Additional Information: | © 2025 The Author(s) |
| Divisions: | Grantham Research Institute |
| Subjects: | H Social Sciences > HJ Public Finance Q Science > QC Physics |
| JEL classification: | Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate; Natural Disasters H - Public Economics > H6 - National Budget, Deficit, and Debt > H63 - Debt; Debt Management G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates |
| Date Deposited: | 26 Aug 2025 11:18 |
| Last Modified: | 26 Aug 2025 11:18 |
| URI: | http://eprints.lse.ac.uk/id/eprint/129272 |
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