(Luận văn) the effect of climate fluctuation on output in developing countries

t to INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIET NAM THE NETHERLANDS ng UNIVERSITY OF ECONOMICS hi ep w VIET NAM – THE NETHERLANDS PROGRAMME FOR MASTER IN n lo DEVELOPMENT ECONOMICS ad ju y th - yi pl n ua al THE EFFECT OF CLIMATE n va FLUCTUATION ON OUTPUT IN fu ll DEVELOPING COUNTRIES oi m at nh By z NGO KHANH LIEN HUONG z k jm ht vb (VIETNAM) om l.c Dr PHAM KHANH NAM gm Academic supervisor n va for Master’s degree in Development Economics an Lu This paper was submitted in partial fulfillment of the requirements ey t re th Ho Chi Minh City, July 2012 t to INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIET NAM THE NETHERLANDS ng UNIVERSITY OF ECONOMICS hi ep w VIET NAM – THE NETHERLANDS PROGRAMME FOR MASTER IN n lo DEVELOPMENT ECONOMICS ad ju y th - yi pl n ua al THE EFFECT OF CLIMATE n va FLUCTUATION ON OUTPUT IN fu ll DEVELOPING COUNTRIES oi m at nh By z NGO KHANH LIEN HUONG z k jm ht vb (VIETNAM) om l.c Dr PHAM KHANH NAM gm Academic supervisor n va for Master’s degree in Development Economics an Lu This paper was submitted in partial fulfillment of the requirements ey t re th Ho Chi Minh City, July 2012 t to ACKNOWLEDGEMENTS ng hi ep This paper has could not be started and completed without the help of several individuals who supported me directly and indirectly First of all, I appreciate my w n lo supervisor Dr Pham Khanh Nam so much for his enthusiastic assistance He has not only ad ju y th given me genuine intellectual guidance in academy but also encouraged me a lot through the analysis process It is so hard for me to complete this research without his profound yi pl advice Thus, I am very grateful to him I am also thankful to Dr Nguyen Trong Hoai for ua al n sharing his knowledge and practice experiences in researching which are very useful for va n this study I also thank all my classmates in class MDE17 for sharing their advantage fu ll discussions on econometric techniques, especially Nguyen Thi Thuy Thanh Last but not oi m at nh least, I would like to thank my parents, and all my other family members for their z concern and invaluable moral support z k jm ht vb om l.c gm an Lu n va ey t re th ~ i~ t to ABSTRACT ng hi ep Climate change is one of the critical problems in recent years on over the world It impacts on many aspects of human life, that has a lot of researches and evident This w n lo paper has analysis the effect of climate change on the aggregate output particularly with ad ju y th two typical elements: temperature and precipitation in developing countries Besides, control variables proxy unobserved effects at country level and country fixed effects are yi pl also counted in the relationship of temperature and precipitation with the country’s ua al n output The finding shows that both temperature and precipitation have significant va n influence on the GDP of developing countries It is specially that temperature affects the fu ll GDP in U-shaped, while precipitation affects the GDP in hump-shaped Moreover, this oi m at nh paper also conducts the relationship of temperature and precipitation with the output by z two characteristics: “hot country” and “agricultural country” The results are also z jm ht vb significant; however, the relationship share cannot be identified Further, this research suggests some adaptive recommendations for production to changing of climate k om l.c gm Key word: climate change, output, panel data, developing countries an Lu n va ey t re th ~ ii~ t to TABLE OF CONTENTS ng hi ep CHAPTER 1: INTRODUCTION……………………………………………………….1 Problem statement……………………………………………………………… w 1.1 n Research Objective……………………………………………………………….4 1.3 Chapter summary……………………………………………………………… lo 1.2 ad ju y th yi pl CHAPTER 2: LITERATURE REVIEW………………………………………………6 ua al n 2.1 The theory……………………………………………………………………………6 n va ll fu 2.2 Empirical studies……………………………………………………………… …7 m oi 2.3 Conceptual framework……………………………………………………… …17 at nh z 2.4 Chapter summary…………………………………………………………… …19 z vb k jm ht CHAPTER 3: METHODOLOGY…………………………………………………….20 l.c gm 3.1 Econometric model………… ……………………………………………………20 3.2 Data…………………………………………………………………………… …24 om an Lu 3.3 Chapter summary…………………………………………………………… …27 n va CHAPTER 4: RESULT…………………………………………………………… …28 ey t re 4.1 Descriptive statistics………………………………………………………………28 th ~ iii~ t to 4.2 Non parametric analysis…… ………………………………………… ………30 ng hi ep 4.3 Econometric analysis…………………………………………………… ………33 w 4.4 Chapter summary……………………………………………………… ……….44 n lo ad CHAPTER 5: CONCLUSION………………………………………………….…… 45 y th ju 5.1 Conclusion…………………………………………………………………………45 yi pl n ua al 5.2 Recommendation…………………………………………………………… ……47 n va REFERENCES…………………………………………………………………….……49 fu ll APPENDIX………………………………………………………………………… …52 oi m at nh z z k jm ht vb om l.c gm an Lu n va ey t re th ~ iv~ t to List of Tables ng hi ep Table 3.1: Variable descriptions…………………………………………………………26 w Table 4.1: Descriptions Statistic…………………………………………………………29 n lo ad Table 4.2: Correlation matrix…………………………………………………………….30 ju y th Table 4.3: Temperature and Precipitation - Estimation Result…………………… ……37 yi pl n ua al Table 4.4: Estimation result with hot countries dummy………………………… …….40 n va Table 4.5: Estimation result with agriculture countries dummy……………………… 42 fu ll List of Figures oi m at nh Figure 2.1: The way climate fluctuation affects the country’s output………… …… 18 z z Figure 4.1: Histogram of temperature – precipitation – GDP per capita………….……28 ht vb k jm Figure 4.2: Average temperature trend……………………………………………… …31 gm Figure 4.3: Average precipitation trend……………………………………………….…31 l.c om Figure 4.4: Average temperature vs Average GDP per capita………………………… 32 an Lu Figure 4.5: Average precipitation vs Average GDP per capita…………………………33 n va ey t re ~ v~ th t to CHAPTER 1: INTRODUCTION ng hi Problem statement ep 1.1 w Increasing output is one of the most important targets of most of the countries, n lo ad especially developing countries The output of a country has been identified in the ju y th function of elements such as human capital, physical capital, and technology However, yi the changing of climate belongs to environment elements in recent years, which is pl ua al considered that it has a critical effect on country’s output Further, the climate change has n economically effected on human health, life and production in agricultural countries, n va ll fu which makes the studies more attractive and interesting m oi Human activities have already changed the atmospheric characteristics such as nh at rainfall, global warming, sea level rise, increasing global carbon dioxide (CO2) emissions z z and the thinning of ozone layer Those climate changes happening constantly as a big ht vb k jm problem all over the world have impacted upon many aspects of human life such as l.c gm natural ecosystem, biodiversity, human health, landscape, socio-economic, etc There are obvious evidences that climate change affects human life (IPCC 2007) For example, om expanding water stress, increasing temperature but reducing the rainfall has caused a an Lu decline in agricultural production in Asian developing countries while demands for th years; China is facing up to the drying up of rivers and lake in the dry weather while ey water shortages because of expanding winter period over the Himalayas during last 40 t re demand, and quality of water resources For instance, Northern Pakistan has been facing n va production are increasing more and more Climate change has affected the supply, t to water need is increasing Likewise, In India, Bangladesh, and Nepal, water shortage is ng hi aggravated by climate change; consequently it has leaded to rising urbanization, and ep using water inefficiently Contrary to the water shortage, glaciers are melting rapidly in w n Central Asia, which has threatened human settlement, cities, forest ecosystem, and the lo ad rising of water level caused the disasters of landslides The 1997/98 El Nĩno event in y th ju Philippines and Indonesia fired around million of peatlands, 9.7 million hectares of yi pl forest (IPCC 2007) That is the extreme climatic event caused substantial fatalities and al n ua economic losses Climate change puts over 50% biodiversity of the Asia at risk, so many n va species could be fragmented or extirpated such as pine forest in Korea or beech tree in fu ll Japan (IPCC 2007) Other critical sector relating to climatic influence is human health m oi Siberia has been reported a big number of deaths associated with heatwaves, while there nh at is a spreading disease like diarrhoeal, cholera, malaria, etc due to poor drinking water z z and sewerage system in flood season Malnutrition and Diarrhoeal are posed as ht vb k jm substantial risk of human health in year 2000 at Bangladesh, India, Nepal, Maldives, and l.c gm Myanmar under climate change (IPCC 2007) Specially, the effects of climate change on the countries having high temperature climate and agriculture share has been considered om profoundly Those heavy effects are explained that hot climate countries are sensitive to an Lu any small change of temperature, while agricultural countries are sensitive to the th changing of climate In general, climate change affects human life through different ey enhancing adaptation greatly and decreasing vulnerability of vulnerable sectors to the t re greenhouse gas, one of the causes of climate chance, although they also contribute to n va changing of precipitation Development activities of human are continuously creating t to channels such as societal (e.g migration, civilization, culture), psychological (e.g mental ng hi illness, cognition), physiological (e.g nutrition, starvation), and economic (e.g energy, ep manufacturing) aspect w n lo In recent years, there are a lot of researches working on influences of climate change ad ju y th The most interesting sector is the climate change’s economic consequences Climate change is the result of greenhouse gas emission from human activities Hence, finding out yi pl the relationship between climate change and output will help suggest the policies or ua al n adaptation strategies in socio-economic sectors to control the effects of climate change va n within each country Furthermore, we can adjust the changes of climate at our will toward fu ll increasing output For instance, the Kyoto Protocol’s main target is to balance greenhouse oi m at nh gas emission (CO2, CH4, N2O, SF6…) in our environment to prevent dangerous effects z from harming the existence and improvement of the human beings This required z jm ht vb developed countries to reduce greenhouse gas, and submit annual activity reports; meanwhile, developing countries are encouraged to joint this protocol k gm l.c Existing studies about the relationship between climate change and the aggregate om output have been quite rare until now Most of them were conducted for the countries of an Lu OECD (Organization for Economic Cooperation and Development), which are strongly n va impacted by temperature because they belong to the relatively low temperature areas For th other published researches estimate the effect of climate change on economic growth ey climate change such as food production, fish catching, forest, or agriculture Moreover, t re some other countries, studies mainly focused on the suffering of separate sectors under