Impact of climate change on income level in Latin America

Abstract

This study assesses the vulnerability of Latin American economies, measured by GDP per capita, to precipitation and temperature fluctuations, in order to estimate how these countries are affected by climatic conditions. The Differentiated Generalized Moments Method (DIF-GMM) was used to verify the influence of climatic variables, together with economic indicators, on the level of economic activity. The results indicated that precipitation extremes, as measured by the Standardized Precipitation Index (SPI), are the dominant climatic influences on economic growth and that the effects are significant and negative. The Drought dummy was associated with a positive influence on GDP per capita, while the flood dummy Rain was associated with a negative influence for Latin American countries. It was found that temperature has a significantly lower effect than precipitation.