Climate variability and macroeconomic output in Ethiopia: the analysis of nexus and impact via asymmetric autoregressive distributive lag cointegration method

Abstract

Ethiopia showed a rapid, yet, a none resilient economic growth much threatened by climate variability. In Ethiopia, the adverse effects of climate variability are stipulated among the significant factors constraining its economic development. There are relatively few studies about the adverse effects of climate variability on the Ethiopian macroeconomy. In this context, little is known about the exact effects of the ongoing climate variability on Ethiopian macroeconomic growth. This study intends to examine whether climate variability factors, for instance rainfall and temperature, have an effect on the macroeconomic output of Ethiopia. An asymmetric autoregressive distributive lag cointegration method is used to investigate time-series data for the years 1950–2014. Diagnostic tests show the relevance of the applied method and robustness of our results. The study finds climate variability affects Ethiopia’s economic growth in the long run. Rainfall and temperature fluctuation induce significant negative impacts. A percentage annual temperature variability for instance decreases the Ethiopian annual gross domestic yield (GDP) up to 4.5 percent. In the short run, climate variability particularly rainfall and temperature changes also have a profound effect on Ethiopia’s economic output. Within such confirmed climate change impacts, Ethiopia should carry out more on adapting and mitigating the impacts as it is presented on its climate-resilient economic growth policies and strategies. In spite of the policy contribution of the results, the study will motivate further research and will also serve as a benchmark for the coming Ethiopian studies.