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The El Niño Southern Oscillation and Economic Growth in the Developing World

Sarah C. Smith and David Ubilava ()

No 2017-11, Working Papers from University of Sydney, School of Economics

Abstract: The El Niño Southern Oscillation (ENSO) affects weather around the globe, particularly in regions where developing countries typically lie. These countries are known to be most vulnerable to weather anomalies, and ENSO thereby has the potential to influence their economic growth. In this study, we investigate the effect of ENSO on economic growth in 69 developing countries, using annual data from 1961 to 2015. We find regime–dependent nonlinearity in the growth response to ENSO shocks. An El Niño event, equivalent to a 1C deviation in sea–surface temperatures in the Niño3.4 region of the equatorial Pacific, results in one–to–two percent annual growth reduction during the El Niño regime, but the effect is absent during the La Niña regime. In addition, we find that the effect of El Niño is twice–as–large in the tropics relative to temperate areas, and particularly pronounced in Africa and Asia-Pacific. The findings of this study have two important implications. From the modeling standpoint, we find that the growth impacts of ENSO shocks are nonlinear, and vary across regions and climatic zones. From the policy-making standpoint, our findings suggest opportunities for short-term adjustments to climate shock management and international aid programs, depending on the existing state and the intermediate-term patterns of the ENSO cycle.

Keywords: Climate Shocks; Developing Countries; Economic Growth; El Niño Southern Oscillation; Nonlinear Effect (search for similar items in EconPapers)
Date: 2017-04, Revised 2017-05
New Economics Papers: this item is included in nep-env
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