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The Predictive Impact of Climate Risk on Total Factor Productivity Growth: 1880-2020

Author

Listed:
  • Desiree M. Kunene

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

  • Renee van Eyden

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

  • Petre Caraiani

    (Institute for Economic Forecasting, Romanian Academy, Romania; Bucharest University of Economic Studies, Romania)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

Abstract

In this study, we investigate the predictive impact of climate risk (as measured by average temperature changes and temperature realised volatility) on total factor productivity (TFP) growth in 23 economies over the period 1880 to 2020 while controlling for real GDP per capita growth. Standard full-sample Granger causality tests offer little evidence of a causal impact of climate change on productivity outcomes. This may be attributed to nonlinearity and structural breaks in the relationship between climate risk and TFP growth, as evidenced by the BDS (1996) test results for nonlinearity and the Bai-Perron (1998, 2003) multiple breakpoint test results. Furthermore, Rossi-Wang (2019) time-varying VAR-based Granger causality tests, which are robust in the presence of instabilities and structural changes, indicate that for a large number of countries, we observe a significant causal impact of climate change on TFP growth in the post-World War II period, with increased significance in the causal impact for the majority of countries in the post-1980 period.

Suggested Citation

  • Desiree M. Kunene & Renee van Eyden & Petre Caraiani & Rangan Gupta, 2023. "The Predictive Impact of Climate Risk on Total Factor Productivity Growth: 1880-2020," Working Papers 202321, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202321
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Total factor productivity growth; climate change; temperature realised volatility; average temperature change; time-varying Granger causality;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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