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

Desiree Kunene (), Renee van Eyden (), Petre Caraiani and Rangan Gupta
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Desiree Kunene: Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa

No 202321, Working Papers from University of Pretoria, Department of Economics

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.

Keywords: Total factor productivity growth; climate change; temperature realised volatility; average temperature change; time-varying Granger causality (search for similar items in EconPapers)
JEL-codes: C32 E23 Q54 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2023-07
New Economics Papers: this item is included in nep-agr, nep-eff, nep-env, nep-gro and nep-his
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:202321

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