Unveiling the Spatial Effects of Climate Change on Economic Growth: International Evidence

Abstract

Climate change represents one of the most serious threats to the well-being of humanity. In recent decades, there has been a significant increase in the amount of research dedicated to analysing the economic impacts of climate change. Nevertheless, the spatial aspect of climate change has not been addressed. This research is the first to empirically assess both direct and indirect (spillover) effects of climate change, as measured by temperature variations, on economic growth. The empirical analysis is based on a balanced dataset for 86 countries between 1980 and 2019. The preliminary analysis suggests the presence of spatial autocorrelation and the suitability of the dynamic spatial autoregressive model to assess the spillover effects of climate change. The results for the full sample reveal that there are no substantial short- or long-run effects of climate change on economic growth. When the sample is decomposed by income, the analysis indicates that climate change has direct and indirect spillover effects on economic growth only in low–middle-income countries over the short- and long run. The decomposition according to the climate regime also yields interesting findings as climate change exerts adverse direct and indirect spillover effects on economic growth only in the hottest countries over the long run. These findings are robust since they hold regardless of whether the contiguity weight matrix or the inverse distance weight matrix is used. The research advocates for international collaboration in the design and implementation of climate change mitigation and adaptation strategies.

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“…Bretschger (2017) highlighted the importance of considering the long-term impacts of climate policies on economic growth, especially in the context of resource depletion and technological development. Stern and Stiglitz argued that stronger action on climate change could enhance economic growth and social welfare by reducing market failures and enhancing growth incentives (Benhamed et al, 2023). Salooja and Butler emphasized the risks to economic growth in resource-dependent countries due to climate change and the need for sustainable natural resource management policies (Stern & Stiglitz, 2023).…”

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“…Climate change is an alarming factor as the weather patterns we were so used to are experiencing a change. It is considered one of the biggest risks that humanity will face in the near future [7].…”

“…Climate change is an alarming factor as the weather patterns we were so used to are experiencing a change. It is considered one of the biggest risks that humanity will face in the near future [7]. Climate change has a high inertia-even if GHG emissions had generally been constant in the last decade [8], climate change would continue, and the global temperature would increase by around 3.28 °C by the end of the century [9].…”