Analysing the Impacts of Climate Shocks and Economic Growth in the Asian Region

Abstract

The primary aim of this study is to rigorously explore the dynamic relationship between climate-related shocks and real per capita GDP growth across 43 Asian economies from 1994 to 2023. This research decisively examines the connections between climatic shocks and economic growth, utilizing critical factors such as money supply, government capital formation and inflation as control variables. By employing the Hamilton filter to extract climatic shocks, specifically temperature and precipitation, this study integrates these variables within a local projection framework to effectively assess their impact on growth trajectories. The analysis uses panel feasible generalized least squares and Driscoll–Kraay standard errors, effectively addressing potential issues of heteroscedasticity, cross-sectional dependence and endogeneity. The results unequivocally demonstrate that climatic shocks have a noteworthy negative impact on economic growth in Asia, with temperature shocks emerging as the most harmful climatic factor that can significantly undermine long-term economic performance in the region. Our findings highlight that government capital formation, money supply and inflation mechanisms are capable of absorbing the effects of temperature and precipitation shocks, creating vital pathways through which targeted policy interventions can effectively mitigate these adverse impacts. Furthermore, this research emphasizes the urgent need for climate-resilient fiscal and monetary frameworks, as well as adaptive investment policies, to safeguard economic stability. Thus, the study provides essential insights into the macroeconomic transmission channels of climate change and outlines clear directions for future research aimed at strengthening resilience through strategic policy measures.