Climate Change , State Capacity and Uneven Growth- A Disaggregated Panel Analysis of India with Dibyendu Maiti (DSE)

Working Paper - CDE Working paper No. 345, Slides

Abstract:-This paper investigates the long-term impact of climate change on the economic growth of the Indian economy, both at aggregate and disaggregated levels across regions and sectors. A cross-sectional augmented auto-regressive distributed lag model (CS-ARDL), addressing endogeneity, heterogeneity and cross-sectional dependence with stochastic trends, has been employed to 29 major states from 1980 to 2019 confirming the strong negative impact of temperature rise on economic growth. On average, a degree temperature increase has decreased economic growth by approximately 3.89%. Further, the marginal impact of temperature shocks varies across states and different income groups. The variation in labour relations, industrialization, migration, forest cover, and debts affecting the differences in ecological services, labour, and capital productivity results in differential growth impacts across regions. Our estimated coefficients combined with the projected temperature reveal that poorer and less developed states will be much more vulnerable than others in the future. Our Projections suggest a 24.8 % loss in GDP under business-as-usual scenarios whereas approximately 5 percent decline under stringent mitigation scenarios