Financial Crises and Climate Change

Abstract

Climate change is a big challenge of our time. While there is a bourgeoning literature on the economic impact of climate change, research on how financial crises affect climate change is limited. We empirically use the local projection method to empirically study the impact of past financial crises on climate change vulnerability and resilience indices. Using a dataset covering 178 countries over the period 1995–2019, we observe that resilience to climate change shocks has been increasing and that advanced economies are the least vulnerable. Our econometric results suggest that financial crises (particularly systematic banking ones) tend to lead to a short-run deterioration in a country’s resilience to climate change. This effect is more pronounced in developing economies. In downturns, if an economy is hit by a financial crisis, vulnerability to climate change increases.