Impact of climate change on productivity growth in India

The current study empirically examines the impact of climate change on total factor productivity growth and labour productivity growth of the Indian economy both at the aggregate level as well at the disaggregate level over the period 1993-2021. This study considers the two broad sectors, viz., manufacturing and aggregate services for the disaggregate analysis. Using GMM technique, the results of the study indicate that both annual average mean and annual average maximum surface temperature affected TFP growth of the aggregate economy negatively and significantly over the period 1993-2021. The results further indicate that total factor productivity growth of aggregate services sector is negatively and significantly influenced by both annual mean and annual maximum temperature controlling for patent stock. This study further finds that the impact of mean and maximum temperature is negative on the TFP growth of manufacturing sector, after controlling for openness as well as patent stock but less significant. Overall, the results indicate that a rise in annual average temperature by 1 degrees C may reduce TFP growth by 2.3-2.7 per cent. Finally, the findings of this study suggest that a rise in temperature leads to fall in labour productivity growth of the aggregate Indian economy and of the manufacturing and services sectors over the period 1993-2021. Thus, the findings suggest strong evidence of the impact of climate change on productivity growth in the context of Indian economy over the period 1993-2021. This implies that the policies may be undertaken to reduce carbon emissions and mitigate the impact of climate change on productivity growth in India.