Abstract:
Climate change is one of the greatest environmental challenges facing the world
today. It is recognized that climate Change and its associated extreme events
will have a wide range of effects on the environment and socioeconomic
sectors. Recent experiences of the nation have shown that Ethiopia is vulnerable
to climate change. This study has attempted to investigate the impact of climate
change on Ethiopian economic growth over a period 1980 to 2012 using vector
autoregressive (VAR) approach for analysis. To do so it has employed the growth
model adapted from Solow-RCK growth models by incorporating the possible
proxy variables for climate change-economic growth and other relevant variables
having better explanatory power in the model.
On the basis of unit root test result all the variables are found to be integrated of
order one 1(1); and then the Johansen ML procedure have been employed to test
for the presence and rank of co integration. Accordingly, the co-integration test
indicated the presence of one co-integrating equation in the model. The empirical
results show that climate change with a proxy variable of temperature has a
significant and negative impact on economic growth proxied by real GDP.
Conversely, climate change with a proxy variable of rain fall has a significant
and positive impact on economic growth on average. Along with these proxy
variables other explanatory variables incorporated in the model such as
population and human capital having negative-significant and positive-significant
impacts on economic growth respectively. Thus, in order to solve the severe
impact of climate change with an increase in temperature, climate-related
programs (mitigation and adaptation) and policies which reduce the emission of
greenhouse gases via using alternative energy sources should be implemented.
