The Economic Impact of Climate Extreme Events: A Global Perspective

Abstract

This study investigates the influence of climate extreme events on economic growth in 25 developed and 58 developing countries from 1981 to 2020, focusing on agriculture and non-agriculture sectors. Employing System GMM methodology to address endogeneity concerns, the research offers robust insights. Findings indicate that floods stimulate overall economic growth, including both sectors, likely due to post-disaster spending surges, while droughts notably hinder economic growth and the non-agricultural sector through reduced productivity and spending.  Moreover, factors such as education, financial depth, and economic openness exhibit varied effects on economic growth. This study's originality lies in its sector-specific analysis and comparison between developed and developing nations, providing nuanced insights into climate-economy interactions. The research underscores the importance of targeted policies to address the multifaceted impacts of climate extremes and suggests measures focusing on education, economic openness, and inflation to mitigate adverse effects on economies.