The Effects of Climate Variability on Economic Growth in Uganda

Abstract

A key criticism of Uganda’s macroeconomic modelling frameworks is the lack of accounting for the effects of climate change. As a result, the demand for sustainable climate change evidence-based policy actions is higher than ever, making this a key issue in policy discussions. However, climate change research in Uganda has been piecemeal, with a few using case studies of agricultural commodities, regions, or agriculture. Thus, using the endogenous economic growth framework, this study estimated the long-term and short-term direct and indirect-sectoral effects of climate change on Uganda’s economic growth using the vector error correction model and Johansen cointegration econometric analysis methods. The results show that climate change (precipitation) affects agriculture and industry sectoral output growth in a positive direction, and service sectoral output growth in a negative direction. Further, climate change (temperature) affects agriculture and industry sectoral output growth in a negative direction, and service sectoral output growth in a positive direction. The study’s main conclusion is that an increase in temperature by 1.0 degrees Celsius accounts for a reduction in economic growth by approximately 2.5 percentage points, keeping all other factors constant. The study recommends accounting for climate change effects in macroeconomic growth frameworks, and implementing key sectoral specific climate sustainability measures.

JEL Classification: C22, 250, 047, Q54