Climate variability, absorptive capacity and economic performance in Sub-Saharan Africa

Abstract

The high reliance of Africa’s GDP on agriculture makes its economic growth susceptible to climate change. The vulnerability of Africa is further worsened by the strong inter-linkage that the agricultural sector has with other productive sectors. To drive policy implications that transform economic performance in Africa, it becomes important to understand the linkages between climate and economy of the region. This paper examines the effects that climate change has on economic performance in sub-Saharan African nations. Based on cross-country panel climatic data that takes account of the absorptive mechanism, it estimates the contribution of climate change to economic performance in sub-Saharan Africa (SSA). The estimator is developed based on the OLS, Fixed Effect, and the Arellano-Bond (1991) Generalized Method of Moments (GMM) estimator. The findings show that high temperature is a significant contributor to worsening economic performance in the SSA region. However, after accounting for the absorptive mechanisms, the relationship is no longer that strong. Specifically, after accounting for initial economic performance, social and political stability in the 2-stage GMM estimation, the estimate for temperature drops by 59%. This result confirms the hypothesis that the negative impact of climate change in the region is not absolute, and that building an overall stable socioeconomic environment in the region could assist in buffering the impact of climate change.