Developing countries face a disproportionate degree of threat from climate change. As such, they require and receive significant financial support to address the
menace. However, little is known about the potential externalities of this form of external liquidity for the business sector. This paper evaluates the impact of climate finance on the ease of doing business (EODB). On the one hand, climate finance might lead to an improved business environment as the funds facilitate infrastructure provision, technological innovation, and international collaboration for recipient countries. On the other hand, however, the business environment might be negatively impacted by complex new regulations, disruptive technological transitions, market distortions, and resource diversions. Countries receiving climate funds may also introduce new environmental and business regulations, implement new technologies, and divert resources to new programs to justify the receipt of aid or demonstrate a commitment to balancing economic development with environmental objectives.
