engleski

Climate Change Impacts on Economic Growth in the European Union

According to the Real Business Cycle (RBC) literature, short-run fluctuations in real output in an economy are mostly driven by productivity shocks. RBC theory analyzes these short-run fluctuations in output in a dynamic general equilibrium framework using a rational utility maximizing representative agent with rational expectations and aggregate production function hit by a variety of productivity shocks. Originally these productivity shocks were thought of in terms of technological innovations. However, with passage of time other types of productivity shocks such as new products and production techniques, new management techniques, changes in the quality of labor and capital, changes in availability of raw materials and energy as well as large environmental impacts have been added to the list. In this study, we expand the definition of productivity shocks to include climate change impacts. Similar to methodology, introduced and described by Blanchard and Quah (1989) on decomposition of productivity shocks, in this study aggregate productivity shock is obtained from Solow residuals and further is decomposed into (i) aggregate, climate-unrelated productivity shock, (ii) climate-related productivity shock, and (iii) other influences.

climate change; economic growth; European Union; Sollow residuals; panel data analysis

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