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Climate Change, Poverty and Economic Growth in Africa Dr Verena Tandrayen-Ragoobur Department of Economics and Statistics University of Mauritius and Dr Vishal Ragoobur Mauritius Employers Federation Presentation Outline ► Introduction ► Aims and Objectives ► Theoretical Background ► Empirical Evidence ► Data Source ► Data Analysis ► Methodology ► Results ► Conclusion and Future Research 2 Introduction ► Climate change is an issue for the world economy. ► But it is a major challenge for poor economies, in particular. ► Today, it is the poor who are mostly affected ► Tomorrow warming we will all face the risks of global 3 Introduction ► Climate disasters are heavily concentrated in poor countries. ► From 2000-2004, some 206 million people were affected annually by climate change. ► Over 98% of them are from developing countries 4 Africa is the most vulnerable continent of the world (IPCC, 2007) Africa will experience severe impacts due to climate change Africa has the lowest capacity to adapt to climate change Africa is the most vulnerable continent of the globe 5 AND MALARIA CONFLICTS AND INSECURITY WATER CRISIS 6 Objectives ► Analyse climate change in Africa through the occurrence of natural disasters ► Examine the impact of climate change on economic growth in Africa ► As climate change has wide ranging effects – we focus on agricultural output (food security) and foreign direct investment 7 Theoretical Review ► Possible Positive Impact of Climate Change on Growth ► Aghion and Howitt (1998) -Schumpeterian model – growth is generated by technological change arising from capital replacement after the disaster. ► Albala-Bertrand (1993a) – macroeconomic indicators improved during the years following the disaster, then returned to their normal level 8 Theoretical Review Negative Impact - Transmission Mechanisms ► Benson and Clay (2004) provide a number of channels via which natural hazards influence growth path Fall in stock of capital and human resources – via migration and deaths Increased spending leads to high fiscal deficits and inflation 9 Theoretical Review Reallocation of expenditures reduces planned investment Repair and recovery financed by aid – additional commitments imposed by donor countries Consecutive natural disasters create an atmosphere of uncertainty that discourages foreign investors 10 Theoretical Review ► Miguel et al. (2004) – increase the risk of civil war and political instability ► Cochrane (1994) – rise in countries’ indebtedness Use a Keynesian growth model and assume that recovery costs are funded by external borrowing Increase in ROI, rise in debt stock causing a fall in investment and growth 11 Empirical Evidence Macroeconomic Studies ► Albala-Bertrand (1993b) – no impact of natural disasters on long term growth ► Benson (2003) - average growth was lower in countries that experienced more natural disasters ► IPCC (2007) – ocean fisheries, fresh water access, migration and tourism 12 Empirical Evidence ► Much research focus on agriculture (Adams et al. 1990; Deschenes and Greenstone 2007; Guiteras 2007) ► On mortality (Curriero et al. 2002; Deschenes and Greenstone 2007; Deschenes and Moretti 2007) ► On crime (Field 1992; Jacob et al. 2007) ► On conflict (Miguel et al. 2004) 13 Empirical Evidence Microeconomic Studies ► Alderman et al. (2004) – Zimbabwechildren between 12 – 24 months during the 1982-84 drought had a higher probability of being stunted (sign of malnutrition) during their preschool years than other children. ► Elbers and Gunning (2003) – reduction in capital stock - Zimbabwe 14 Data Source ► Data on macroeconomic variables was obtained from the World Bank Development Indicators 2007 ► Data on Natural Disasters is from ‘EM-DAT: Emergency Events Database: The OFDA/CRED International Disaster Database’ – Universite Catholique de Louvain – Brussels - Belgium 15 Data Analysis ► Data ►A is collected for the African Continent sample of 47 countries ► Time Frame: 1960 – 2006 ► Panel Data Analysis 16 Prevalence of Natural Disasters across Africa 400 Natural Disasters 350 300 250 200 150 100 50 0 19001929 19301959 19601969 19701979 19801989 19901999 20002008 Year Eastern Africa Middle Africa Northern Africa 17 Southern Africa western Africa Methodology ► Variables: Dependent Variable ►GDP Growth ►Agricultural Value Added as a share of GDP Explanatory Variables ► ► ► ► ► Gross Domestic Investment as a share of GDP FDI as a share of GDP Trade as a share of GDP - Openness measure Foreign aid as a share of GDP Debt as a share of GDP 18 Methodology ► Variables: ► Population growth ► Industry value added as a share of GDP ► Agriculture value added as a share of GDP ► Agricultural land as a % of total land area ► Time dummies ► Main Variable: ► Climate change measured by the number of natural disasters 19 Methodology ► Stata 9.0 is used for estimation ► Panel data technique is applied. We used the fixed effect estimation method. 20 Econometric Specification GDP Growth Equation GDPG ct 0 1 AgrVAct 2 IndVAct 3GDINV ct 4Tradect 5 FDIGDPct 6 Popct 7 AidGDPct 8 AidGDPct2 9 DebtGDPct 10Climatect 11TimeDummie s 1ct Agricultural Production Equation AgriPct 0 1 AgrLand ct 2 IndVAct 3GDINV ct 4Tradect 5 FDIGDPct 6 Popct 7 AidGDPct 8 Climatect 9TimeDummie s 1ct 21 Results Table 1:GDP Growth Obs.=1308 Variables AgriVA Coefficients 0.124*** GDInv AidGDP AidGDP2 DebtGDP 0.194*** 0.278*** -0.382*** -0.031*** (7.52) (5.08) (5.10) (5.52) IndVA Pop Trade 0.098*** 0.898*** 0.027* (2.99) (4.56) (1.77) FDIGDP Climate Time Dummies 0.075** -0.169 (2.31) (1.19) R2=0.2 Absolute t-stats (3.57) 22 Results Table 2:GDP Growth Obs. = 1201 Variables AgriVA Coefficients 0.097*** Absolute t-stats (2.63) GDInv AidGDP AidGDP2 DebtGDP 0.198*** 0.258*** -0.365*** -0.029*** (7.07) (4.24) (4.52) (4.68) IndVA Pop Trade 0.123*** 0.897*** 0.022 (3.36) (4.39) (1.30) FDIGDP Climate (Co2 Emi) Time Dummies 0.078** -0.173 (2.25) (0.77) R2=0.19 23 Results Table 3:GDP Growth Obs.= 1308 Variables AgriVA GDInv AidGDP Coefficients 0.126*** 0.189*** 0.281*** Absolute t-stats (3.61) (7.30) (5.14) AidGDP2 DebtGDP IndVA -0.387*** -0.031*** 0.106*** (5.16) (5.48) (3.19) Pop Trade 0.896*** 0.027* (4.56) (1.75) FDIGDP 0.049** (1.34) Climate Climate*FDIGDP Time Dummies -0.040 -0.040* (0.25) (1.70) R2=0.19 24 Results Table 4:Agricultural Output Obs.=1299 Variables Coefficients Absolute t-stats 0.087* (1.72) GDInv -0.168*** (7.78) AidGDP -0.004 (0.17) -0.556*** (24.38) -0.0000016*** (4.99) Trade 0.040*** (3.07) FDIGDP 0.098*** (3.38) Climate -0.195* (1.65) R2=0.455 Agricultural Land IndVA Pop Time Dummies 25 Conclusion ► Climate change is different from other problems ► It challenges us to think differently at many levels ► It challenges us to think about what it means to live as part of an ecologically interdependent human community 26 Future Work ► Testing the other transmission mechanisms ► Using data on air temperature and precipitation as a measure of climate change ►A negative impact of climate change on growth is normally observed in the ST ► But MT and LT impacts are still subject to debate – Use of dynamic panel ► What about Mauritius? 27 Thank You