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Alassane Drabo
The three main financial inflows to developing countries have largely increased during the last two decades, despite the large debate in the literature regarding their effects on economic growth which is not yet clear-cut. An emerging literature investigates the dependence of their effects on some country characteristics such as human and physical capital constraint, macroeconomic policy and institutional capacity. This paper extends the literature by arguing that climate shocks may undermine the effect of Foreign Direct Investment (FDI), official development assistance (ODA) and migrants’ remittances on economic expansion. Based on neoclassical growth framework, the theoretical model indicates that FDI, ODA, and remittances improve economic growth, and the size of the effect increases with good absorptive capacity. However, climate shocks reduce this positive effect of financial flows in developing countries. Using a sample of low and middle-income countries from 1995 to 2018, the empirical investigation confirms the theoretical conclusions. Developing countries should build strong resilience to climate change. Actions are also needed at global level to reduce greenhouse gases emissions, and build strong structural resilience to climate shocks especially in developing countries.
Alassane Drabo

. Role of Climate shocks on the Effect of Financial Flow on Economic Growth Without Human Capital A4. Role of Climate Shocks on the Effect of Aggregate Financial Flow on Economic Growth A5. Role of Maximum and Minimum Climate Shocks on the Effect of ODA, FDI and Remittances on Economic Growth A6. Role of Natural Disasters on the Effect of ODA, FDI and Remittances on Economic Growth A7. Role of Average Climate Shocks on the Effect of ODA, FDI and Remittances on Economic Growth Using Three-year Time Periods A8. Role of Average Climate Shocks on the Effect of

Matthew E. Kahn, Mr. Kamiar Mohaddes, Ryan N. C. Ng, M. Hashem Pesaran, Mr. Mehdi Raissi, and Jui-Chung Yang

GDP per capita by 2030, 2050, and 2100 under the RCP 8.5 Scenario: the Role of Climate Variability 9. Individual U.S. State Estimates of the Average Yearly Rise in Temperature Over the Period 1963–2016 10. Long-Run Effects of Climate Change on the Growth Rate of Major Economic Indicators for the United States, 1963–2016 11. Long-Run Effects of Climate Change on the Growth Rate of Major Economic Indicators for the United States, 1976–2016 12. Long-Run Effects of Climate Change on the Output Growth of Various Sectors in the United States, 1963–2016 A.1

Mr. Anthony M Annett and Joshua Lipsky

century, the Late Antique Little Ice Age had arrived. A changing climate reduced the empire’s resilience to a variety of shocks, including pandemics. Smallpox struck in the second century, and a virulent outbreak that may have been Ebola followed in the third. In the mid-sixth century, the Plague of Justinian—the first known incidence of bubonic plague—probably killed half of the empire’s population. Recent evidence shows the role of climate change. The decade before the outbreak of plague saw some of Europe’s coldest temperatures in two millennia, brought about by

Mr. Kirk Hamilton and Marianne Fay

their part in mitigation. The role of climate finance, flowing from high-income to developing countries, is to reconcile equity with efficiency and effectiveness in dealing with the climate challenge. The current climate financing architecture is built around the Clean Development Mechanism (CDM) of the United Nations Framework Convention on Climate Change (UNFCCC) and about 20 other bilateral and multilateral climate funds. These instruments will generate roughly $9 billion a year between end-2008 and end-2012 (see Chart 2 ). Carbon markets under the CDM, whereby

Alassane Drabo

+ ε i t ( 4.3 ) The coefficient of the financial inflows should have a positive coefficient while the climate shock variable and its interaction with financial inflows are expected to have a negative impact on economic growth. The negative coefficient of the interaction term shows the detrimental role of climate shocks on the effect of financial inflows on economic growth. This model is estimated with and without the human capital variable. B. Estimation strategy These econometric models inspired from the theoretical framework are dynamic panel

Mr. Michael Keen and Benjamin Jones

these two challenges . How should the challenges of recovery affect climate policy? And how should climate concerns be reflected in macroeconomic and fiscal policies over the short and longer terms? Section II discusses the impact of the crisis and recession on emissions pricing objectives and policies. Section III considers the role of climate-related expenditure programs both as part of fiscal stimulus packages and in the longer term. Section IV concludes. II. E missions P ricing P olicies and R ecovery A. Climate Objectives Amid Macroeconomic Weakness

Mr. Michael Keen and Benjamin Jones
Negotiations toward a successor to the Kyoto Protocol on climate change have come to a critical point, and domestic climate policies are being developed, as the world seeks to recover from the deepest economic crisis for decades and looks for new sources of sustainable growth. This position paper considers the challenge posed by these two policy imperatives: how to exit from the crisis while developing an effective response to climate change. Blending the objectives of a sustained recovery and effective climate policies presents both challenges and opportunities. Although there are potential “win-win” spending measures conducive to both, the more fundamental linkages and synergies lie in the broader strategies adopted toward each other. Greater climate resilience can promote macroeconomic stability and alleviate poverty; and carbon pricing, essential for mitigation, can contribute to the strengthening of fiscal positions that is expected to be needed in many countries. There are, nevertheless, also difficult trade-offs to face, notably in the somewhat greater caution now warranted in moving to more aggressive emissions pricing. However, the simple policy guidelines for addressing climate issues remain fundamentally unchanged; the need to deploy a range of regulatory, spending, and emissions pricing measures.
Matthew E. Kahn, Mr. Kamiar Mohaddes, Ryan N. C. Ng, M. Hashem Pesaran, Mr. Mehdi Raissi, and Jui-Chung Yang
We study the long-term impact of climate change on economic activity across countries, using a stochastic growth model where labor productivity is affected by country-specific climate variables—defined as deviations of temperature and precipitation from their historical norms. Using a panel data set of 174 countries over the years 1960 to 2014, we find that per-capita real output growth is adversely affected by persistent changes in the temperature above or below its historical norm, but we do not obtain any statistically significant effects for changes in precipitation. Our counterfactual analysis suggests that a persistent increase in average global temperature by 0.04°C per year, in the absence of mitigation policies, reduces world real GDP per capita by more than 7 percent by 2100. On the other hand, abiding by the Paris Agreement, thereby limiting the temperature increase to 0.01°C per annum, reduces the loss substantially to about 1 percent. These effects vary significantly across countries depending on the pace of temperature increases and variability of climate conditions. We also provide supplementary evidence using data on a sample of 48 U.S. states between 1963 and 2016, and show that climate change has a long-lasting adverse impact on real output in various states and economic sectors, and on labor productivity and employment.

, we argue that while climate change adaptation could reduce these negative economic effects, it is highly unlikely to offset them entirely. More forceful mitigation policies are needed to limit the damage from climate change. Table 8: Percent Loss in GDP per capita by 2030, 2050, and 2100 under the RCP 8.5 Scenario: the Role of Climate Variability Year 2030 Year 2050 Year 2100 (h = 16) (h = 36) (h = 86) World 2.02 5.18 13.11 China 0.78 1.99 5.02 European Union 1.45 3.71 9.37 India 2.62 6.70 16.92 Russia 2.00 5.13 12.94 United States 2.66 6.81 17.19 Rich Countries 2