Table of Contents

ABSTRACT

Climate change has been linked to a few detrimental economic effects. Hence, attention has been given to investigating the mechanisms that link climate change with the real economy. The objective of this paper is to estimate how climate change impacts the Sub-Saharan region’s labour productivity, capital formation, and labour supply nonlinearly. These variables represent the potential transmission variables that link climate change to economic growth. The methodology used to estimate the equations of interest is the system generalized method of moments, which involves unbalanced panel data that covers the annual data from 1994 to 2018 in 29 sub-Saharan countries. Different instrument variables examine the sensitivity of the estimations. This paper also deploys the Lind and Mehlun U-test to confirm the existence of nonlinear relationships. There are two key findings from the result. First, temperature boosts the Sub-Saharan region’s labour productivity, capital formation, and labour supply. However, the effect reversed after a threshold, as shown by the negative coefficient found in squared temperature. Second, rainfall has a similar impact, albeit the coefficient sign of squared rainfall is not robustly supported in sensitivity analyses. This paper also offers some policy implications. It is important to formulate strategies to mitigate economic challenges posed by escalating temperatures. The policy recommendations include incorporating climate concerns in workplace design, work policies and infrastructure constructions.

Keywords: Sub-Saharan, temperature, rainfall, productivity, capital, labour supply, nonlinear

JEL Classification: E22; J27; O47; Q54