Is water security necessary? An empirical analysis of the effects of climate hazards on national-level economic growth

Abstract

The influence of climate and the role of water security on economic growth are topics of growing interest. Few studies have investigated the potential role that climate hazards, which water security addresses, and their cumulative effects have on the growth prospects for a country. Owing to the relatively stationary spatial patterns of global climate, certain regions and countries are more prone to climate hazards and climate variability than others. For example, El Nino/Southern Oscillation patterns result in greater hydroclimatic variability in much of the tropics than that experienced at higher latitudes. In this study, we use a precipitation index that preserves the spatial and temporal variability of precipitation and differentiates between precipitation maxima (e.g. floods) and minima (e.g. droughts). The index is a more precise instrument for hydroclimate hazards than that used in any previous studies. A fixed effects, for year and country, regression model was developed to test the influence of climate variables on measures of economic growth and activity. The results indicate that precipitation extremes (i.e. floods and droughts) are the dominant climate influences on economic growth and that the effects are significant and negative. The drought index was found to be associated with a highly significant negative influence on gross domestic product (GDP) growth, while the flood index was associated with a negative influence on GDP growth and lagged effects on growth. The flood index was also found to have a negative effect on industrial value added in contemporary and lagged regressions. Temperature was found to have little significant effect. These results have important implications for economic projections of climate change impacts. Perhaps more important, the results make clear that hydroclimatic hazards have measurable negative impacts, and thus lack of water security is an impediment to growth. In addition, adaptation strategies should recognize the importance of managing hazards given the identification of precipitation extremes as the key climate influence on historical GDP growth.