Does climate finance reduce vulnerability in Small Island Developing States? An empirical investigation

International climate funds play a key role in supporting the adaptation policies of Small Island Developing States (SIDS) to climate change by reducing their vulnerability. The mechanism of contributions established at national level under the Paris Agreement of 2015 lays the foundations to help international donors better understand each country's climate needs. With this in mind, this paper aims to provide some policy suggestions emerging from the analysis of the impact some variables have on reducing vulnerability. To this end, we consider the vulnerability index of 33 SIDS countries in terms of adaptation and mitigation policies. Based on the data availability, we use the panel-corrected standard errors estimator in time span from 2010 to 2014, taking into account the spatial heterogeneity of vulnerability. Our findings display that foreign aid and social development variables are crucial to promoting adequate and balanced responses to climate change. Therefore, we can confirm the effectiveness of external funds in reducing vulnerability. Domestic resources alone do not appear able to help SIDS due to endogenous limits of countries beneficiaries. The approach proposed in this paper can be extended to other small countries which are not islands, as well as to islands that are not nations.