The impact of climate change on aggregate output in middle- and high-income countries

Abstract

This study aims to analyse the impact of climate change on the aggregate output of middle- and high-income countries by using dynamic panel data analysis for yearly observations from 1990 to 2016. Following the Cobb–Douglas production function, the analyses included key economic parameters which are capital stock, labour force, and total factor productivity, and also climate change indicators namely temperature and precipitation. The generalised method of moments test results revealed different findings for middle- and high-income countries. Both the temperature and precipitation variables had a negative and statistically significant impact on aggregate output for middle-income countries. In the high-income countries, the temperature was found to have a positive but negligible effect on aggregate output, whereas precipitation was not found to have any significant effect. Granger causality test is also conducted to check for the consistency of GMM estimation.