Climate Change, Poverty and Economic Growth in Africa

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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

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Presentation Outline

• Introduction
• Aims and Objectives
• Theoretical Background
• Empirical Evidence
• Data Source
• Data Analysis
• Methodology
• Results
• Conclusion and Future Research

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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 we will all face the risks of global
  warming

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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

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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
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AND MALARIA
CONFLICTS AND INSECURITY
WATER CRISIS
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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

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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

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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

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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

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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

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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

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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)

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Empirical Evidence

• Microeconomic Studies
• Alderman et al. (2004) Zimbabwe- children
  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

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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

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Data Analysis

• Data is collected for the African Continent
• A sample of 47 countries
• Time Frame 1960 2006
• Panel Data Analysis

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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

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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

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Methodology

• Stata 9.0 is used for estimation
• Panel data technique is applied. We used the
  fixed effect estimation method.

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Econometric Specification
GDP Growth Equation
Agricultural Production Equation
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Results
Table 1GDP Growth Obs.1308
Variables Coefficients Absolute t-stats
AgriVA 0.124 (3.57)
GDInv 0.194 (7.52)
AidGDP 0.278 (5.08)
AidGDP2 -0.382 (5.10)
DebtGDP -0.031 (5.52)
IndVA 0.098 (2.99)
Pop 0.898 (4.56)
Trade 0.027 (1.77)
FDIGDP 0.075 (2.31)
Climate -0.169 (1.19)
Time Dummies ? R20.2
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Results
Table 2GDP Growth Obs. 1201
Variables Coefficients Absolute t-stats
AgriVA 0.097 (2.63)
GDInv 0.198 (7.07)
AidGDP 0.258 (4.24)
AidGDP2 -0.365 (4.52)
DebtGDP -0.029 (4.68)
IndVA 0.123 (3.36)
Pop 0.897 (4.39)
Trade 0.022 (1.30)
FDIGDP 0.078 (2.25)
Climate (Co2 Emi) -0.173 (0.77)
Time Dummies ? R20.19
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Results
Table 3GDP Growth Obs. 1308
Variables Coefficients Absolute t-stats
AgriVA 0.126 (3.61)
GDInv 0.189 (7.30)
AidGDP 0.281 (5.14)
AidGDP2 -0.387 (5.16)
DebtGDP -0.031 (5.48)
IndVA 0.106 (3.19)
Pop 0.896 (4.56)
Trade 0.027 (1.75)
FDIGDP 0.049 (1.34)
Climate -0.040 (0.25)
ClimateFDIGDP -0.040 (1.70)
Time Dummies ? R20.19
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Results
Table 4Agricultural Output Obs.1299
Variables Coefficients Absolute t-stats
Agricultural Land 0.087 (1.72)
GDInv -0.168 (7.78)
AidGDP -0.004 (0.17)
IndVA -0.556 (24.38)
Pop -0.0000016 (4.99)
Trade 0.040 (3.07)
FDIGDP 0.098 (3.38)
Climate -0.195 (1.65)
Time Dummies ? R20.455
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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

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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?

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Thank You