Climatic Change and Economic Growth: An Evidence from Low-Income Economies

Abstract

Climate change is a threat not only to the affected country but to the entire world. Over the last few decades, incidents of climatic change have increased drastically, and these incidents have both direct and indirect impacts on the economy. The United Nations Environment Programme (UNEP) Adaptation Gap Report 2016 warns of the increasing impacts of climatic risks and, as a result, an increase in global adaptation costs. The prediction is that international costs will increase by two to three times by 2030 and four to five times by 2050. This study investigates the short-run and long-term impacts of climate change on economic growth across low-income countries from 2005 to 2018. The study uses the Panel Autoregressive Distributed Lag (PARDL) approach. This model allows us to study both the short-run and long-term effects of climate change on economic growth and capture the possible links in the short run. For the study purposes, twenty-two low-income countries were chosen from almost all continents on the basis of their income levels. The data for the GDP, as a proxy of a country's economic growth, is taken from the World Development Indicators (WDI), and for climate change, we use the global climatic risk index (CRI) developed by German watch (CRI) is used as an explanatory variable in the model. The empirical results show that climatic change, especially weather-related events, negatively impacts the economic growth of low-income countries during the studied period in the long run. But in the short run, climatic change does not significantly affect the economic growth of countries. Moreover, climate change has been severely affecting low-income countries over the last few decades, as reported in the study. As climatic risk increases, the vulnerability in these countries also increases, and this study supports the need for a global mitigation approach.