Unlocking the Impact of Climate Change on Industry Total Factor Productivity

ISID organized a webinar on “Unlocking the Impact of Climate Change on Industry Total Factor Productivity” on November 17, 2023. The presentation was made by Prof Dibyendu Maiti, Associate Professor, Delhi School of Economics, University of Delhi, and Mr Naveen Kumar, Research Scholar, Delhi School of Economics, University of Delhi. The presentation was discussed by a panel of experts that included Dr M Balasubramanian, Assistant Professor, Institute of Social and Economic Change, Bengaluru; Dr Chandra Sekhar Bahinipati, Assistant Professor, Indian Institute of Technology, Tirupati; and Dr R Rijesh, Assistant Professor, ISID. The webinar was moderated by Dr Anjali Tandon, Associate Professor, ISID.


Abstract: Emerging economies (EMEs) often ignore effective mitigation strategies for climate risks to prioritise growth acceleration. This paper shows that they cannot sustain their economic growth due to the adverse impact of climate change on total factor productivity (TFP). Using a standard growth model, it demonstrates how temperature rise and variation for growing carbon emissions reduce capital productivity along with the damage to ecosystem services and labour productivity, adversely impacting total factor productivity (TFP). A cross-sectional augmented auto-regressive distributed lag model (CS-ARDL), which addresses the issues of endogeneity, heterogeneity and cross-sectional dependence with stochastic trends, has been applied to 21 EMEs over the period from 1990 to 2018 and reveals a strong negative impact of temperature rise on total factor productivity. Although EMEs have heterogeneous impacts across the countries depending upon their climatic zones and income levels, one degree increase in temperature, on average, has decreased the TFP by approximately 3 per cent. It is much higher in the extreme climatic zones and less developed economies.