Progress in Development Studies 15, 1 (2015) pp.

73–86


Climate change: A threat to
the economic growth of Pakistan
Naeem Akram
Ministry of Economic Affairs, Islamabad, Pakistan

Abdul Hamid
Office of the Auditor General of Pakistan, Islamabad, Pakistan

Abstract: Pakistan is recognized as a country with low income along with poor human development
indicators. Although its contribution to greenhouse gas (GHG) emissions is miniscule in comparison
with other countries (it contributes only about 0.8 per cent of the total GHG emissions), it is one
of the major victims of the adverse effects of climate change. The present study is an attempt to
explore the impacts of climate change on the economic growth of Pakistan by conducting a national
level analysis for the period 1973–2011. It has been found that temperature (proxy for climate
change) has a negative and significant relationship with GDP, as well as with productivity in the
agricultural, manufacturing and services sectors. The severity of these negative effects is higher for
the Agriculture sector as compared to manufacturing and services.

Key words: climate change, economic growth, cointegration, seemingly unrelated regression

I Introduction in the long run it will be destructive (Parry

The effects of climate change on economic
development are no longer a mystery but are
rapidly becoming a stark reality. Accelerating
emissions of the greenhouse gases (GHGs)
in developing countries, especially in the
emerging economies, have raised serious
concerns about the relationship between
climate change and economic growth. Rising
GHG emissions are resulting in the increased
temperatures and are having serious impacts
on climate. Although climate change may
initially have some positive effects for some
developed countries, for example, Canada,
et al., 2007).
Moreover, the impacts of climate change
are not evenly distributed – the poorest
countries and people will suffer earliest and
most (Nordhaus, 1991; Stern, 2006) – because
these countries are more vulnerable to the
negative effects of climate change on water
resources, ecosystems, crop production,
fisheries and human health. These countries
have a large population dependent on climate-
sensitive sectors and they have low adaptive
capacity to develop and implement adaptation
strategies. Despite their limited role in GHGs

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74  Climate change
emission they have to bear the cost for
promotion and adoption of different mitigation
strategies (Sathaye, 2006). Similarly, due to
limited adaptive capacities in these countries
poor communities are much more vulnerable
(Parry et al., 2007).
Since Independence in 1947, considerable
industrialization has taken place in Pakistan,
consequently GHG emissions have acceler-
ated and has resulted in changing the climate
considerably. However, climate change and
associated risks were not on the policy agenda
in Pakistan until the country faced numerous
devastating natural disasters. In this regard,
the earthquake in 2005 was a turning point
as it forced the government to take major
steps in the form of disaster preparedness and
mitigation. In this regard, the National Disaster
Ordinance was promulgated in 2006 and the
National Disaster Management Authority
(NDMA) was set up. It is noteworthy that
the efficiency and technical capacity of the
NDMA was not remarkable during the floods
2010–11; these floods brought horrendous
devastation, the aftermath of which are still
being experienced. It can be summarized that
Pakistan’s vulnerability to repeated natural
disasters (e.g., droughts (2000), earthquake
(2005) and floods (2010 and 2011) alerted
the government towards the risks posed by
natural disasters and climate change. In this
regard the ‘National Environment and Climate
Change Policy’ was formulated in 2005 and
in 2008 the Planning Commission formed a
special task force on climate change to deal
with various climate change issues in Pakistan,
like the increased variability of the monsoons,
the rapid melting of Himalayan glaciers and
the increased siltation of dams, etc. (Hamid
et al., 2011).
The present study will analyse the effects
of climate change on the overall economic
growth of Pakistan as there is very limited
research available that has analyzed how
climate change is affecting the economy of
Pakistan. The organization of the article is as
follows: after the introduction, the section
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‘Literature review’ presents the literature
review and the section ‘The scenario for
Pakistan’ describes the situation of climate
change in Pakistan. In the section ‘Theoretical
model’ a theoretical model for climate change
and economic growth is developed. The
empirical model along with a description
of data is provided in the section ‘Empirical
model and description of Data’. The section
‘Estimation results’ is devoted to the discus-
sion of the estimation results while the last
section ‘Conclusions and policy implications’
presents policy implications and suggestions
for further research.
II  Literature review
Besides the fact that economic analysis of
climate change is a comparatively new issue,
numerous studies have estimated the impacts
of climate change on economic growth in
different regions of the world. Most of these
studies are numerical in nature and are specu-
lative but they provide a solid foundation for
future research. There are three crucial types
of studies focusing on the effects of climate
change on economic growth.
First and the most important studies are
those that are focused on how the overall
economic growth and the structure of the
economy are affected by climate change.
Due to climate change, some sectors of
the economy grow faster in comparison to the
others; leading to change in the in the size
and composition of GDP. These changes also
affect the long-term growth potential of the
country (Scheraga et al., 1993). Nordhaus
(1994) finds that warming of 3°C would
reduce the 0.25 per cent of GDP of the
USA. However, if unmeasurable impacts of
warming are also included then damage may
increase to 1–2 per cent of GDP. On the other
hand, Stern (2006) has projected that in next
50 years world temperatures would raise to
2–3°C. These climate changes have several
socio-economic impacts; including impacts
on water, agricultural productivity (food),
health, etc., and it will result in a loss of at

least 5 per cent of global GDP per year.
However, Weitzman (2007) has criticized
these findings by saying that there are certain
uncertainties associated while measuring the
impacts of climate change and conclusion
are drawn by Stern (2006) are based on
assuming a very low discount rate.
Fankhauser and Tol (2005) and Calzadilla
et al. (2006) concluded that the extreme
weather will result in raising the global savings.
Because when it was expected that in future,
global damage will increase then people save
more to cope with anticipatory losses caused
by climate change. According to Lecocq and
Shalizi (2007) although there is no direct effect
of climate change on the GDP; however, GDP
will be affected indirectly by variations in
demand structure.
The second important class consists of
those studies that have analyzed; how climate
change affects the major determinants of
GDP and how these effects are transmitted
to GDP growth. Parry et al. (2007) 1 have
analyzed the impacts of climate change on
different sectors. Study projects a decline in
water supplies stored in the glaciers and snow
cover, which results in water scarcity. If the
global average temperature exceeds 1.5–2.5°C
then approximately 20–30 per cent of the
plant and animal species will face the danger
of extinction. As far as the food production
is concerned, if temperature increases in the
range of 1–3°C then potential for food produc-
tion will increase but temperature rise beyond
that would decrease the food production. Rise
in sea surface temperature of about 1–3°C
would cause more frequent coral bleach-
ing events and widespread mortality, unless
there is thermal adaptation or acclimatization
by corals. Sea-level rise will negatively affect
the coastal wetlands including salt marshes
and mangroves. Costs and benefits of climate
change for industry, settlement and society
depends on location and scale. Projections
made by Agrawala et al. (2003) reveal that
climate change affects the Bangladesh’s
economy through sea level rise, higher
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Naeem Akram and Abdul Hamid 75
temperatures, enhanced monsoon precipi-
tation and run off, potentially reduced dry
season precipitation and increase in cyclone
intensity.
Since temperature and precipitation are
direct inputs in agricultural production, many
believe that the largest effects will be on
agriculture. However, the production rises
in the higher latitudes because of an increase
in arable land and tends to fall in the tropics
because of decline in the availability of water
(Cooper, 2000). The climate change can
affect food systems in several ways: including
the direct effects on crop production includes
(e.g., changes in rainfall leading to drought or
flooding, or warmer or cooler temperatures
leading to changes in the length of growing
season) impacts on markets, food prices and
supply chain infrastructure. Gregory et al.,
(2005) and Akram (2012) suggest that climate
change plays crucial role in the context of
food security.
Higher temperatures will be harmful for
most of the developing countries, because in
these countries water is inadequate, and tem-
peratures are high (Reilly 1995; Rosenzweig
and Parry, 1994). Due to these factors an
increase in temperatures will make many
agricultural areas less productive and even
unsuitable for production. Mendelsohn and
Dinar (1999) concluded that as the cool
wheat-growing areas get warmer, the higher
temperatures will reduce the grain yields.
However, it is found that in case of India and
Brazil, although the agricultural sector is very
sensitive to climate but the individual farmers
do consider local climates and they try to
minimize the effects of global warming. Later
on Mendelsohn et al. (2001) and Mendelsohn
and Williams (2004) found that most of the
market sector impacts of climate change have
a hill-shaped relationship with temperature.
Cool countries/areas are likely to benefit
from warming; temperate locations will have
modest effects, while the hot areas will be
negatively affected by warming.
76  Climate change
Livestock have a very significant role in the
livelihoods of the poor in developing countries
and impacts of climate change on livestock
systems are another important dimension.
The feed, its quantity and quality; heat stress,
water, livestock diseases and disease vectors,
biodiversity are major channels through
which climate change affects the livestock
(Thornton et al., 2009).
Gilbreath (2004) by discussing a report of
WHO states that climate change may increase
the risk of death and suggested that most of
the diseases which are common in developing
countries are sensitive to climate change and
even a proportionally small change in global
temperature, incidence of some diseases could
result in significant public health problems.
It has been estimated that due to climate
change in some regions risk of diarrhoea
has increased to 10 per cent. Similarly, large
increases are also estimated for malaria. Gallup
et al., (1999) has pointed out that any change
in climate results in changing the pattern of
disease burden and agricultural growth. It
has been found that there exists a correlation
between spread of malaria and climate change
in India (Bhattacharya et al., 2006). Similarly,
the degree of global warming can increase
incidence of malaria by around 10 per cent
(McMichael et al., 1996).
Third and very important issue that is dis-
cussed in some of the studies is that whether
controlling GHGs will have positive impacts
on long-run economic growth. It is a general
perception that environmental regulations
will impose the constraints on the produc-
tion possibilities, leading to harmful impacts
on economic growth. However, it has been
argued that effects of environmental policy
on economic growth vary through the stages of
development (Bretschger and Smulders, 2001;
Smulders et al., 2005). The environmental
regulations will enhance prospects for growth
if improved environmental quality increases
the productivity of inputs or efficiency of
education system (Ricci, 2007). Greiner (2003)
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finds that higher abatement activities may
reduce GHG emissions and lead to higher eco-
nomic growth. The study further extended and
Greiner (2005) finds that an increase in GHG
emissions, negatively affects aggregate output
and marginal productivity of capital.
III  The scenario for Pakistan
The Global Climate Change Impact Study
Centre (GCISC) has analyzed trends in
temperature and precipitation for the period
1951–2000 in Pakistan by its agro-climatic
zones. It has been found that Baluchistan
plateau, Central and South Punjab had expe-
rienced a warming trend; however, other
regions had a cooling trend during 1951–2000.
Furthermore it has been projected that
average annual temperature in Pakistan will
increase by 4.3–4.9°C by 2085 and increase
in temperature will be lower in Southern parts
in comparison to the Northern parts of the
country (Figure 1).
UNEP (2000) by developing an integrated
scenario explained the impacts of climate
change on various sectors of Pakistan economy
like energy, agriculture, water resources, for-
estry, etc. It has been found that an increased
temperature and decreased precipitation rates
will negatively affect the agricultural produc-
tion. The study has also predicted that there
is likelihood of the occurrence of extreme
weather events in the form of flooding and
it was also indicated that infrastructure in
Pakistan is not adequate to meet the challenge.
Lack of education and health care facilities have
been recognized as major causes of increased
mortality (heat-related), water and vector-
borne diseases, respiratory diseases, etc.
Another study by GCISC found that all
14 crops (under the analysis) were affected
by the heat stress. It was also found that
6 per cent reduction in rainfall results in
an increase of 29 per cent irrigation water
requirements. Similarly except for Northern
Mountainous region in all other regions wheat
yield has shown a decline due to climate
 Naeem Akram and Abdul Hamid 77

Figure 1  Mean temperature trend in °C (Annual) 1951–2000

Source: Global Change Impact Study Centre (GCISC). Retrieved from http://www.gcisc.org.pk/2005-CRP01-CMY-
Khan_CAPaBLE_FinalReport.pdf

change. Hussain et al. (2005) also found a
depressing impact of climate change on the
agricultural productivity especially for wheat.
Similarly, Ahmed (2005) found that 1 per cent
increase in temperature will reduce the wheat
yield by 1.74 per cent.
Oxfam (2009) investigated the impact
of climate change on rural communities in
Pakistan by selecting three disaster-prone
areas; namely, Badin, Rajanpur and Khuzdar.
In the coastal region of Badin, it was found
that sea water has caused floods and soil had
become saline causing difficulties for farmers in
crop harvesting. The number and intensity of
heavy rainfalls had increased vector and water-
borne diseases like diarrhoea and malaria. In the
flood-prone villages of Rajanpur, it was found
that due to climatic changes both cultivation
and harvesting periods moved backwards;
therefore, farmers had to face shorter growing
season. Similarly, diarrhoea and gastrointestinal
diseases have also increased due to changes in
weather. According to the survey in drought-
prone district of Khuzdar duration of the
growing season had decreased and due to
scarcity of water livestock had been severely
affected.
The foregoing review shows that most
of the studies conducted on climate change
in Pakistan are in context of investigating
its impact on agriculture, water and natural
resource base of the country. Comprehensive
study to analyze the overall effects of climate
change on economic growth is lacking and
present study is an attempt to fill the existing
gap in the literature.

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78  Climate change

IV  Theoretical model on economic growth. While equation (2)

To analyze the impacts of climate change on
economic growth two types of approaches
are most widely used, that is, enumerative
approach and dynamic approach. In the
enumerative approach the economic impact
of climate change are analyzed separately
sector by sector, that is, impacts of climate
change on agriculture, ecosystem tourism,
etc. Later on these effects are added up to
get an estimate of total change in the social
welfare from climate change (cline, 1994;
Nordhaus, 1991; Tol, 1995). In this approach,
mostly CGE models and simulation techniques
are used.
In dynamic approach, different specifica-
tions of growth models are used by incorpo-
rating climate change indicators into growth
models. Ramsey (1928), Solow (1956), Swan
(1956), Cass (1965) and Koopmans (1965)
and Mankiw et al. (1992) are most widely
used growth models to analyse the impacts
of climate change on economic growth
(Fankhauser and Tol, 2005). In these models
impacts of climate change are directly linked
to GDP.
The present study will use both of these
approaches to some extent and analyze the
impacts of climate change on economic growth
and its components, that is, Agriculture,
Manufacturing and Services. Dell et al.
(2008) have incorporated climate change in
the production function, this model will be
used as baseline in the present study because
it provides theoretical basis for incorporat-
ing climate change into economic growth
equations. Consider the production function.
Yt = e aT t a t L t K t (1)
9a t
= bT t (2)
at
Where Y is GDP, L is Labour force, A is
technology and can also be referred as a
labour productivity, and T is the impacts of
climate and K is physical capital. Equation
(1) captures direct effects of climate change
captures the indirect effect of climate, that
is, the impact of climate on other variables
that indirectly influence the GDP growth. It
is worth mentioning here that the equation
(1) directly relates climate change to GDP
whereas in the equation (2) climate changes
affect labour productivity that will affect the
GDP growth.
After taking logs of equation (1) and
differencing with respect to time, following
equation can be derived.
g t = ( a + b) Tt - aT t - 1(3)
Where gt is the growth rate of GDP, direct
effects of climate change on economic growth
appear through a and indirect effects appear
through b. This equation separately identi-
fies the direct and indirect effects of climate
change. Both of these affect GDP growth
rate in the initial period. However, when
climate returns to its prior state then direct
effect reverses itself. For example, a rise in
temperature may harm agricultural produc-
tion, but whenever temperature returns to its
normal level the agricultural production once
again accelerates. On the other hand, indi-
rect effect emerges during the climatic shock
and their impact persists even in the normal
conditions: for example, a failure in human
capital development results in a permanent
deterioration in human capital and economic
growth.
V  Empirical model and description
of data
In the light of the theoretical model, following
reduced form equation of economic growth
will be estimated. The equation is an empirical
specification of the equation (3) of the
preceding section.
yt = a 0 + a1 k t + a2 popt + a3 opt
A
+ a4 tmpt + ft

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 Naeem Akram and Abdul Hamid 79

Where y represents real GDP, k, pop, op and
tmp denote investment, population growth,
openness and temperature respectively.
In order to see which sector of economy
is affected more by climate change, model will
also be regressed on three major sectors of
GDP, that is, Agriculture (ag), Manufacturing
(mn) and Services (sr). The model that will be
estimated in this regard is as under.
Agt = a 0 + a 1 k t + a 2 popt _b
bb
+ a 3 tmpt + pt bb
bb
b which are often needed for seed germination
Mnt = a 0 + a 1 k t + a 2 popt bb
`bB
+ a 3 tmpt + }t
Srt = a 0 + a1 k t + a 2 popt
+ a 3 tmpt + dt
Time series econometric techniques will be
used to estimate the model A. However, the
model B is a Seemingly Unrelated Model so it
will be estimated by using seemingly unrelated
regression (SUR) technique.2
In the present study data spanning over
the 1973–2011 for the Pakistan has been used.
A brief description and details of the data
sources is presented in Table 1:
It is noteworthy here that the selection
of appropriate indicator for climate change
is rather tricky issue. In literature, numerous
indicators for the climate changes have
been used. The selection of an indicator for
climate change depends on the environment
in consideration. In arctic and mountainous
environments the loss of total snow pack
or delay in the onset of snow are most
appropriate. In temperate climates, it may
very well be the associated drought but just
as easily a loss of winter freezing temperatures
or natural pest control. In many Mediterranean
bb and semi-arid environments, the frequency of
bb
bb drought and increasing temperatures are more
bb
bb crucial. In coastal areas, sea level rising may
a trump all the above. Increase storm severity
seems to, at least seasonally, be the dominant
manifestation of climate change (due to rising
ocean temperatures) in some areas. Likewise,
increasing winds may play a dominant change
role along with increasing drought severity in
arid environments.
Similarly, climate change has been seen in
various perspectives by different people. In the
perspective of a common man, climate change

Table 1  Data description

Sr.
No. Name of variable Data source Comment
1. GDP (Y) SBP 3
Real GDP at constant factor cost 1999–2000
2. Investment (K) SBP Gross capital formation as percentage of GDP
3. Labour (pop) SBP Population growth rate
4. Openness (op) SBP (Exports + Imports ) as percentage of GDP
5. Agriculture (Ag) SBP Share of Agriculture
6. Manufacturing (Mn) SBP Share of Manufacturing
7. Services (Ser) SBP Share of Services
8. Temperature (Tmp) Pakistan Data on daily and monthly temperature from 1961
Meteorological onwards is available for selected stations. Annual
Department averages for all stations in Pakistan and various
provinces have been calculated from the monthly data.

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80  Climate change
is an increase in temperature and erratic rainfall
pattern. According to a meteorologist, climate
change is a rise in temperatures both maximum
and minimum, rainfall patterns, rainy days,
high intensity rains and rise in humidity,
wind storms and variation in sunshine hours.
A plant physiologist views the climate change
as effects on flowering pattern in crops, fruit
setting, fruit fall and early maturity. Similarly,
an agricultural engineer perceives climate
change as changing water demands of crops,
high evaporation losses and crop damages
due to water logging and salinity. Whereas
an agronomist/horticulturist considers yield
reduction or little increase in spite of all the high
tech inputs as an indicator for climate change.
A veterinary specialist may consider climate
change as an impact on milk production,
reproduction behaviour, newer diseases and
viruses. Whereas in the view of a medical
specialist changes in human behaviour, new
viruses, diseases, human psychology to grab
more to sustain uncertain future in the name
of race, religion, region, language, caste, etc.,
are the outcomes of climate change.
It is appropriate to consider a range
of impact indicators and not rely just on
temperature. However, each indicator will
have its own relationship with temperature,
and some of these may be quite complex.
Furthermore, the variable that may be chosen
to describe climate change should be:
1. Continuous in time and space,
2. Easily measurable,
3. Monotonically increasing or decreasing,
4. Should be a state variable,
5. Preferably have a long record of obser-
vations.
6. The natural variability of the variable
should be low. If the variable itself natu-
rally varies very much year-to-year or
decade-to-decade, the signal of climate
change might get swamped. It is difficult
to assess whether climate is changing.
Considering the earlier criteria and date avail-
ability in Pakistan, temperature stands out as
the best variable to describe climate change.
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It may also be important to mention here a
couple of study limitation arising due to avail-
ability of data. The temperature data used here
are annual mean average daily temperature.
However, there are huge variations which
exist in summer and winter temperatures
in Pakistan, although monthly/daily data
are available regarding temperature but no
monthly or quarterly data are available for
GDP and other macroeconomic variables.
Similarly, there exists considerable variation
in climatic conditions among various provinces.
Therefore, it is much better that a sub-national
level analysis may also be conducted. The
availability of data of the macroeconomic
indicators for different provinces has once
again emerged as a major hurdle in this regard.
VI  Estimation results
For the time series, in order to guard against
spurious regression, the first step is to see
whether the series is stationary or non-
stationary;4 to ensure that unit root tests are
used. The results of unit root test, presented
in Table A1, reveal that the model consists of
I (I), that is, integrated of order 1, variables, in
these circumstances cointegration technique
has been used. To test the cointegration
among the variables of the same order, there
are two main techniques available, that is,
Engle and Granger (1987) and Johansen (1988)
approach. As the number of variables in the
study is more than two, we apply cointegra-
tion procedure developed by Johansen (1988).
There are four different steps involved
while testing cointegration, in the first step
order of stationarity is determined and variable
must be stationary at same level. We have
already found that all variables are stationary
at first difference, that is, series of the model
is I (1). Therefore, the cointegration can be
determined between the variables. Second
step involves choosing the optimal lag length.
To determine the lag length VAR model has
been used and on the basis of AIC criteria,
lag length of one for the model is determined.
Next step deals with determining the number
of cointegrating vectors. In the study, both
trace statistic and eigenvalue statistic are used
 Naeem Akram and Abdul Hamid 81

and the results are summarized in Table 2 and
Table 3 respectively.
Both the trace and maximum eigenvalue
tests suggest that there exists a cointegrating
vector among the variables. In the fourth step
normalized equation of the cointegration is
analysed, the results of the normalized coin-
tegrating equation are presented in Table 4.
The significant normalized cointegration
coefficient for gross fixed capital formation
(proxy for investment) indicates that in the long
run investment has a positive and significant
impact on economic growth. The finding is in
accordance with the theory that investment
enhances economic growth; and it is supported
by numerous studies on the subject including
Mankiw (1990), Barro and Sala-i-Martin
(2003) and Akram (2010). The results also
support an important empirical regularity –
that population growth results in curtailing

Table 2  Unrestricted cointegration rank test (trace)

Hypothesized
No. of CE(s) Eigenvalue Trace statistic 0.05 Critical value Prob.**
None* 0.699483 94.11652 69.81889 0.0002
At most 1* 0.523026 53.23995 47.85613 0.0143
At most 2 0.358979 28.06995 29.79707 0.0781
At most 3 0.262605 12.95040 15.49471 0.1166
At most 4 0.073427 2.592923 3.841466 0.1073
Notes: Trace test indicates 1 cointegrating eqn(s) at the 0.05 level.
*denotes rejection of the hypothesis at the 0.05 level.
**MacKinnon–Haug–Michelis (1999) p-values.

Table 3  Unrestricted cointegration rank test (maximum eigenvalue)

Hypothesized
No. of CE(s) Eigenvalue Max-eigen statistic 0.05 Critical value Prob.**
None* 0.699483 40.87657 33.87687 0.0062
At most 1 0.523026 25.17000 27.58434 0.0988
At most 2 0.358979 15.11955 21.13162 0.2806
At most 3 0.262605 10.35748 14.26460 0.1895
At most 4 0.073427 2.592923 3.841466 0.1073
Notes: Max-Eigenvalue test indicates 1 cointegrating eqn(s) at the 0.05 level.
*denotes rejection of the hypothesis at the 0.05 level.
**MacKinnon et al., (1999) p-values.

Table 4  Normalized cointegrating coefficients

Coefficient Standard error t-statistic
K 1.469507* 0.38464 3.820474
OP 2.617887* 0.48039 5.449504
POP −9.72738* 0.51152 –19.01662
TMP −17.5471* 3.09975 –5.660815
Log likelihood 338.5563
Note: *denotes rejection of the hypothesis at the 0.05 level.

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82  Climate change

economic growth of a country, although the
effect is found to be insignificant. Coale and
Edgar (1958) also come to the same result. It
is worth noting here that relationship between
population growth and economic growth is not
straight forward. If population is well trained,
educated and having access to better health
facilities then it will have a positive effect
on economic growth. However, in case of
Pakistan, due to lack of education and training
population growth results in having negative
impacts on economic growth. Consistent
with expectations, openness is significant
with positive sign in all the specifications. It
supports the findings of Coe (1995) and Lucas
(1988). The temperature being the indicator
of climate change is negatively affecting the
economic growth in Pakistan. It may also be
noted that coefficient of the temperature is
highest revealing that it is the major factor that
affects the GDP growth.
The results of estimating the empirical
specification B (Supper reduced model of
various sectors of economic growth) by using
the seemingly unrelated regression (SUR) are
summarized in Table 5.
The results reveal that investment has
a positive relationship with all sectors of
GDP while, rest of the variables, that is,
population growth and temperature (climate
change) have a negative and significant
impact on all the sectors. However, these
results reveal that impacts of various variables
are not evenly distributed. It suggests that
investment stimulates the Manufacturing most
and Agriculture least. Similarly, population

Table 5  System estimation results (SUR)

Coefficient Standard error t-statistic
Equation 1: Agt = a0 + a1lt + a2  popt + a3tmpt+ pt
Constant 40.51389* 3.535847 11.45805
K 0.759943* 0.227903 3.334494
PoP −0.476863** 0.205958 −2.315344
TMP −6.045614* 1.097994 −5.506052
R-squared 0.109898 Durbin–Watson statistic 0.182644
Adjusted R-squared 0.100495
Equation 2: Mnt = a0 + a1lt + a2  popt + a3tmpt+ }t
Constant 34.81235* 3.897628 8.931676
K 1.822921* 0.251222 7.256211
PoP −0.874367* 0.227031 −3.851313
TMP −5.267636* 1.210339 −4.352198
R-squared 0.221505 Durbin–Watson statistic 0.191950
Adjusted R-squared 0.213281
Equation 3: Srt = a0 + a1lt + a2  popt + a3tmpt+ dt
Constant 39.23246* 3.633546 10.79729
K 1.401911* 0.234201 5.985942
PoP −0.988432* 0.211649 −4.670157
TMP −5.939864* 1.128333 −5.264283
R-squared 0.202578 Durbin–Watson stat 0.184048
Adjusted R-squared 0.194155
Determinant residual covariance of the model 0.024305

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growth rate has highest negative impact on the
Services sector whereas the negative impacts
of population growth rate are very limited to
Agriculture sector. It sheds light on the issue
that Agriculture has comparatively more
labour absorption capacity. As far as tempera-
ture is concerned, the Agriculture sector is the
most badly affected by a rise in temperature
and the Manufacturing is the least vulnerable.
The severe impacts of climate change on
Agriculture are highlighted in various earlier
studies on the subject including Reilly (1995)
and Mendelsohn (1999).
VII  Conclusions and policy implications
The present study has analysed the relationship
between climate change and economic
growth in Pakistan by analyzing the historical
relationship between variations in climate and
economic growth for the period 1973–2011.
Moreover, the study has also analyzed the
effects of climate change on various sectors
of the economy.
The results show that temperature (proxy
for climate change) has negative and significant
relationship with GDP as well as with the
productivity in Agriculture, Manufacturing and
Services sectors. However, severity of these
negative impacts is higher in Agriculture sector
as compared to Manufacturing and Services.
The study asserts that if climate change is not
controlled then it will hurt economic growth
to a great extent.
In order to control climate change at the
micro level, both adaptation and mitigation
measures are needed to cope with the impacts
of climate change in different sectors. Need for
development of local level adaptation strate-
gies, reducing undesirable human interventions
in forests, on glaciers, wetlands and pastures
are crucial in this regard.
However, climate change is an inter-
national/regional issue. Pakistan alone can do
very little in controlling climate change as its
share is very limited in GHGs emission in com-
parison to developed countries. Hence, there
is a need for a joint and comprehensive policy
Progress in Development Studies 15, 1 (2015) pp. 73–86
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Naeem Akram and Abdul Hamid 83
regarding the adoption of mitigation strate-
gies to control climate change. Furthermore
south Asian countries are facing similar envi-
ronmental problems, so in order to cope with
the climate challenge there is need for joint
actions at least among South Asian countries.
It is suggested that:
1. Initiatives for sharing knowledge and
experiences among South Asian coun-
tries may be supported and joint assess-
ment studies for the future regarding
availability of natural resources may be
conducted that includes distributional
challenges of increasing numbers and
intensity of natural disasters.
2. Academic exchange may be strength-
ened by considering it as a crucial pillar
of cooperation. In order to collaborate on
environmental data exchange scientific
teams can provide a regional platform.
Furthermore, joint research projects
should be encouraged and supported.
It is noteworthy here that as mentioned earlier
there exists huge variations in climate and
geographic features in Pakistan. Although
provincial/district level data regarding macro-
economic indicators are not available,
however, primary data can be collected to
gauge the impacts of climate change on live-
stock, agriculture and human health. Hence
there is need of further analysis of climate
change at various provinces/districts by con-
ducting comprehensive surveys. In that direc-
tion, in future study will be further extended
to explore the impacts of climate change on
human health and agriculture production.
It is most commonly perceived that poor
are more affected by negative fallouts of
climate change due to their vulnerability and
limited capacity to adopt mitigation/adoption
strategies. There is also need to analyze the
effects of climate change on the poor especially
in the Agriculture and Health sector and also
need to gauge the effects of extreme weather
events (caused by climate change) on poor.
84  Climate change

Annexure I
Table A1  Results of ADF test

Name of Level 1st Difference

variable Intercept Trend & intercept None Intercept Trend None
Y −0.430519 −3.038414 2.558856 −3.18312* …… ……
K −1.452271 −1.388672 0.398104 −4.462361* …… ……
PoP −1.261823 −2.719233 −1.625222 −7.117041* …… ……
TMP −1.590867 −1.928845 0.515775 −5.170954* …… ……
Op −2.547031 −2.524208 −0.134555 −6.596946* …… ……
Note: *Denotes significance at 5 per cent level.

Acknowledgements Bhattacharya, S., Sharma, C., Dhiman, R.C. and

The views presented in the article are the
authors’ personal and do not reflect the views
of their affiliated institutions. The authors
are also thankful to South Asian Network of
Development and Environmental Economics
(SANDEE), Nepal for their funding to conduct
the present research.
Notes
1. Parry et al., (2007).
2. For details of estimation methodologies, see
Wooldridge (2002, 2005).
3. State Bank of Pakistan annual reports.
4. Newbold and Granger (1974).
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