Nonlinear country-heterogenous impact of the Indian Ocean Dipole on global economies

Abstract

AbstractA positive Indian Ocean Dipole features an anomalously high west-minus-east sea surface temperature gradient along the equatorial Indian Ocean, affecting global extreme weathers. Whether the associated impact spills over to global economies is unknown. Here, we develop a nonlinear and country-heterogenous econometric model, and find that a typical positive event causes a global economic loss that increases for further two years after an initial shock, inducing a global loss of hundreds of billion US dollars, disproportionally greater to the developing and emerging economies. The loss from the 2019 positive event amounted to US$558B, or 0.67% in global economic growth. Benefit from a negative dipole event is far smaller. Under a high-emission scenario, a projected intensification in Dipole amplitude causes a median additional loss of US$5.6 T at a 3% discount rate, but likely as large as US$24.5 T. The additional loss decreases by 64% under the target of the Paris Agreement.