Temperature, Precipitation and Economic Growth: The Case of the Most Polluting Countries

This study analyzes the impact of climate change on economic growth for the top 20 countries in the world that cause the most carbon emissions. Following the Cobb–Douglas production function, we investigate the long-run relationships between temperature/precipitation and economic growth, capital stock, labor force, and productivity using static and dynamic panel data analyses for the period 1990–2019. The results from three different models are examined. Linear model test results reveal that temperature and precipitation do not have statistically any significant impact on economic growth in these countries. Nonlinear model test results indicate that the primary impact of temperature on economic growth is positive and statistically significant, whereas the secondary impact is negative and statistically significant. However, precipitation does not have any statistically significant impact on economic growth. Finally, the results of nonlinear model without control variables are similar to those of nonlinear model. The Dumitrescu and Hurlin panel causality test is also performed to check the consistency of static and dynamic panel estimations, and the results indicate bidirectional causality between temperature and economic growth but no causal relationship between precipitation and economic growth in these countries.