Hanging Out to Dry? Long-term Macroeconomic Effects of Drought in Fragile and Conflict-Affected States

Hanging Out to Dry? Long-term Macroeconomic Effects of Drought in Fragile and Conflict-Affected States
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Volume/Issue: Volume 2024 Issue 106
Publication date: May 2024
ISBN: 9798400277221
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Topics covered in this book

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Economics- Macroeconomics , Economics / General , Industries - Food Industry , Environmental Economics , Natural Disasters , climate change , long-term growth and inflation , climate policy , drought condition , FCS country , FCS group specification , drought measure , FCS' growth , Natural disasters , Food production , Productivity , Global , Sub-Saharan Africa

Summary

Using a comprehensive drought measure and a panel autoregressive distributed lag model, the paper finds that worsening drought conditions can result in long-term scarring of real GDP per capita growth and affect long-term price stability in Fragile and Conflict-Affected States (FCS), more so than in other countries, leaving them further behind. Lower crop productivity and slower investment are key channels through which drought impacts economic growth in FCS. In a high emissions scenario, drought conditions will cut 0.4 percentage points of FCS’ growth of real GDP per capita every year over the next 40 years and increase average inflation by 2 percentage points. Drought will also increase hunger in FCS, from alreay high levels. The confluence of lower food production and higher prices in a high emissions scenario would push 50 million more people in FCS into hunger. The macroeconomic effects of drought in FCS countries are amplified by their low copying capacity due to high public debt, low social spending, insufficient trade openness, high water insecurity, and weak governance.