FDI & Climate Adaptability — Peyman Hekmatpour, PhD

Project Overview

1,961Country-Year Observations

142Countries

15Years (2009 to 2023)

-3.97Effect on Climate Readiness

This project addresses a longstanding debate in the sociology of development: Does foreign direct investment help or harm receiving nations? Rather than treating all FDI as equivalent, this study develops a new network-based index — the Core Capital Dependency Index that captures where investment comes from, how central the sender is in the global economy, and how much a receiving country depends on such capital relative to its own outward investments. The index is then used to explain cross-national variation in climate adaptability across 142 countries from 2009 to 2023.

Network data come from the IMF's Direct Investment Positions by Counterpart Economy (DIPCE) dataset, which covers 176 countries across 30,800 bilateral dyads. Climate outcomes are measured using the Notre Dame Global Adaptation Initiative (ND-GAIN) index and its two sub-indices of vulnerability and readiness. Results from growth curve panel models show that dependence on capital from core economies significantly reduces climate readiness and overall adaptability, while leaving vulnerability largely unaffected.

The Core Capital Dependency Index

The central methodological contribution of this project is a dynamic and relational measure of FDI that simultaneously accounts for the source of foreign capital, the receiver's structural position in the world investment network, and its degree of reliance on foreign capital relative to its own outward investments. The index is derived from IMF bilateral FDI network data and recomputed for each country in each year.

Step-by-Step Construction

Coreness Score. For each year, countries are ranked by their total outward FDI positions. The rank is then normalized to produce a coreness score between 0 and 1, where 1 = most core (largest outward investor):
Coreᵢₜ = (Nₜ − rankᵢₜ) / (Nₜ − 1)

Capital Composition Score. For each receiver country, the share of inward FDI coming from each sender is computed, then weighted by the sender's coreness. This scores higher when a country's inflows come predominantly from more core-like economies:
Sᵢⱼₜ = Inᵢⱼₜ / Inᵢₜ Compᵢₜ = Σ Sᵢⱼₜ × Coreⱼₜ

Reliance Ratio. Dependence is conceptualized as reliance on incoming capital relative to a country's own outward investment capacity:
ρᵢₜ = Inᵢₜ / (Inᵢₜ + Outᵢₜ)

Core Capital Dependency Index. Combining the above, the final index scores higher when a country is more reliant on capital from core-like senders and less central in the network itself. By multiplying by (1 − Coreᵢₜ), the index penalizes countries that are themselves core actors and rewards peripheral receivers:
Dependencyᵢₜ = Compᵢₜ × ρᵢₜ × (1 − Coreᵢₜ)

The index ranges from 0 to 1. Countries of the Global South, which tend to have high inward FDI from core economies and limited outward investment, consistently score higher, while core economies such as the US, Germany, and Japan score near zero. This makes the index a meaningful and dynamic measure of structural dependency in the global investment network.

Interactive Maps (2023)

The maps below show the geographic distribution of the Core Capital Dependency Index and the three ND-GAIN climate outcome variables across countries in 2023. Use the buttons to switch between variables. Hover over any country for details.

Core Capital Dependency Index (2023)

Data: IMF DIPCE (2025) for dependency; ND-GAIN (2025) for climate outcomes. Hover for country values.

Core Capital Dependency & Climate Outcomes (2023)

The scatter plots below show the cross-sectional relationship between Core Capital Dependency and each climate outcome across 162 countries in 2023. Countries are labeled by their ISO-3 code. Click any point for the full country name and values. Use the buttons to switch between outcomes.

Core Capital Dependency vs. Climate Vulnerability

2023 cross-section, N = 162 countries. Hover for full country name and values. Data: IMF DIPCE (2025), ND-GAIN (2025).

Regression Results

The figure below shows the average marginal effect of Core Capital Dependency on the three ND-GAIN outcomes from growth curve models with random intercepts and slopes. Error bars represent 95% confidence intervals. Core capital dependency has a significant negative effect on climate readiness and overall adaptability, but not on vulnerability.

Figure. Average Marginal Effects of Core Capital Dependency on Climate Outcomes

N = 1,961 country-year observations, 142 countries, 2009 to 2023. Growth curve models with random intercepts and slopes. Robust standard errors in parentheses. * p < .05

Key Findings

Core capital dependency significantly reduces climate readiness (β = -3.97, p < .05) and overall ND-GAIN score (β = -2.08, p < .05), but has no significant effect on climate vulnerability. This distinction is theoretically important: it suggests that FDI dependency from core economies does not directly increase countries' physical or biophysical exposure to climate hazards, but it significantly undermines their institutional, economic, and social capacity to respond to and adapt to those hazards.

Notably, for readiness and the overall ND-GAIN index, core capital dependency is the only significant predictor in the full model, outperforming GDP per capita, trade openness, CO2 emissions, and other controls. This underscores the importance of the relational and structural dimension of FDI captured by the new index, as opposed to the simple volume or stock measures used in most prior research.

These results contribute to a growing body of scholarship calling for more nuanced measurement of FDI. By simultaneously accounting for the source of capital, the coreness of the sender, and the receiver's structural position in the global investment network, the Core Capital Dependency Index offers a more theoretically grounded and empirically powerful tool for studying the social consequences of global investment.