Article 2 (Climate Change)

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The impact of climate change on economic growth: Evidence from a panel of

Asian countries
Article in Environmental Development · July 2023

DOI: 10.1016/j.envdev.2023.100898
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Environmental Development 47 (2023) 100898
Contents lists available at ScienceDirect
Environmental Development
journal homepage: www.elsevier.com/locate/envdev
The impact of climate change on economic growth: Evidence from

a panel of Asian countries
Zakariya Farajzadeh *, Effat Ghorbanian, Mohammad Hassan Tarazkar **
Department of Agricultural Economics, College of Agriculture, Shiraz University, Shiraz, Iran
A R T I C L E I N F O A B S T R A C T
Keywords: Asia is recognized as one of the most vulnerable regions. This research aims to identify climate
Economic growth change effects on economic growth. It proposes a new and comprehensive perspective to examine
Climate change the climate-economy nexus in this region and provides an underpinning for assessing the pathway
SSP scenarios
of the growing Asian economy under the SSP climate scenario (CMIP6). We apply a
Asia
macroeconomic-climate modeling approach with a climate damage function. The damage func
tion, which is based on the temperature anomaly, was examined under three classes of damage
severity. The climate change effect has been examined by including the direct effect on the output
as the level effect and two more channels, including capital depreciation and productivity growth
reduction. The augmented Solow growth model framework that considers different types of
capital, including physical, human, social, and environmental capital, was applied. The labor
productivity or technology is assumed to depend on trade-related variables, including trade
openness, financial development, and foreign aid inflows. Also, in order to test the constant
returns to scale assumption, the CES production function, which is the flexible production
technology, was used. The study relied on the country-year panel of GDP per capita and other
macroeconomic variables such as labor force, capital formation, financial development index,
trade openness, and foreign aid gleaned for 1994–2017 to estimate production functions using the
GMM estimation method. The climate data on the annual mean temperature and projections of
future temperature are based on ICMP6 by 2100 for Asian countries. Based on the CES estimation
results, constant returns to scale or Cobb-Douglas production function was adopted. The esti
mation results show that physical and environmental capital account for the highest contribution
to the output per worker. However, the contribution of trade-related variables was found to be
insignificant. The projected pathway by 2100 establishes that climate change would significantly
reduce Asian output per worker, especially if severe damage function is examined, and climate
change stays on the SSP scenario-anticipated trajectory. The output elasticity with respect to
temperature under the most severe scenario was obtained − 22.80, corresponding to the output
per worker reduction of 46.7 percent in 2100. Among the three channels of the climate effect,
productivity growth reduction showed the most adverse effect on output. The lower flexibility of
the production function that restricts the environmental replacement with other inputs, may lead
to a more binding role under growing scarcity conditions. It was also found that labor and
technology could contribute dampening the capital damage induced by higher temperatures.
From the research results, the findings suggest measures aiming at providing flexible production
* Corresponding author.
** Corresponding author.
E-mail addresses: zakariafarajzadeh@gmail.com (Z. Farajzadeh), e.ghorbanian313@gmail.com (E. Ghorbanian), tarazkar@shirazu.ac.ir
(M.H. Tarazkar).
https://doi.org/10.1016/j.envdev.2023.100898
Received 16 July 2022; Received in revised form 6 May 2023; Accepted 10 July 2023
Available online 14 July 2023
2211-4645/© 2023 Elsevier B.V. All rights reserved.
Z. Farajzadeh et al. Environmental Development 47 (2023) 100898
technology, development of capital-embodied technologies, and lower dependence on environ

mental capital.
1. Introduction
There is no doubt that climate change is already widespread happening, and its severe threats to human welfare, development, and
the environment, are known as the most significant future challenge of the century 21. Greenhouse gases emitted into the atmosphere
through human activities are a primary driver of global warming and are responsible for causing climatic change. Increasing emissions
of carbon dioxide is a definite danger to the fate of the earth, which results in putting environmental sustainability and long-term
human survival at risk (Khan et al., 2021a; Skytt et al., 2020). In order to curb these adverse effects of climate change, it is neces
sary for all countries to take a decisive response to reducing greenhouse gas emissions with a comprehensive and multi-dimensional
approach (Codal et al., 2021).
The future projections show that climate continues to change over this century and beyond (IPCC, 2021). The report of COP261
(2021) also shows that the situation is deteriorating, and the latest update projection indicates a significant increase of about 13.7% in
global GHG emissions in 2030 compared to 2010. This is while IPCC has estimated that in order to limit global warming to 1.5 ◦ C - 2 ◦ C,
CO2 emissions should be reduced by 45% and 25% by 2030, respectively. This upward trend can make the situation more difficult and
complicated (UNFCC, 2021). Accordingly, climate change seriously stays high on the agendas of policymakers that were gathered in
Glasgow for the UN Climate Change Conference, COP26. Environmental regulations vary between countries, and developed European
countries are much stricter than other countries, including Asian countries. Government institutions in all countries must make new
reforms in environmental policy because less stringent environmental laws and regulations may lead to polluting activities and
increasing carbon emissions (Khan et al., 2021b).
There is a new wave of political and scientific interest in understanding the effects of climate change on economies and issues
related to sustainable development, which provides an opportunity to shift toward a sustainable economic system and the development
of sustainable technologies (Khan et al., 2019). The government needs to improve its social-economic and environmental policy in a
way to restrict carbon emissions and adopts sustainable practices in economic operations, such as a green supply chain, and green
technologies, which will ultimately provide healthy economic growth (Khan et al., 2021c). Now, a controversial question among
economists is whether economic growth and development are affected by climate change and weather variation (Li et al., 2020). Also,
many big economic questions in the coming decades will be related to the climate-economy relationships. Although climate change is a
global phenomenon with consensus about its occurrence, its extent and extreme in some regions of the world, such as Asia as a
vulnerable region is greater, which in turn makes its economic effects controversial as well. Thus, it is necessary to focus on regions
such as Asia. We also pursue assessing the economic impacts of climate change on Asian countries.
1.1. Asian countries and climate change
Asia is the largest and the most populous continent in the world. It covers 60% of the current population (more than 4.4 billion
people) and accounts for 30% of the total world area (United Nations, 2015). The Asian economy has been severely affected by climate
change. It has been clearly observed in most Asian regions in the form of increasing temperature, an increase in warm days, a decrease
in cold days, a change in the precipitation pattern, and the severity of extreme weather events. These trends will continue over the
coming decades (IPCC, 2021). The consequences of climate change have been increased in Asia, which can affect the continued
economic growth, livelihoods, and poverty (Akram, 2012). It is worth noting that the average GDP growth of South and East Asian
countries (about 5.5–7.9%) has been much higher than that of global (approximately 2.8%) for the period 1980–2020. Although the
economic growth of the countries is higher, better management of crises requires a more sustainable economy. For example, coro
navirus (COVID-19) crisis has resulted in a decline in the economic growth from 4% in 2019 to − 6.2 in 2020 for South Asian countries
(World Bank, 2021), showing the vulnerable and fragile condition of these countries in critical situations.
Climate change with inadequate management attempts may lead to water scarcity, reduced food production, and extreme poverty;
and given the large population, it will be a major challenge for Asian countries in the future (Auffhammer, 2019). Asia had an average
temperature of 1.39 ◦ C higher than the average of 1981–2010 in 2020. It was recorded as the warmest year, and this trend is expected
to continue (WMO, 2020). The trend of increasing average annual temperature in East and South Asia has been observed during the
20th century and the average temperatures projected will be between 4.65 and 5.16 ◦ C higher than 1961–1990 for China and
Mongolia, respectively, by 2090 (Westphal et al., 2013). Across Southeast Asia, temperatures have risen by 0.14–0.20 ◦ C per decade
since the 1960s. Also, the average temperature for frontier Asia, which consists of Bangladesh, India, and Pakistan is projected to
increase by an average of 2–4 ◦ C by 2050 (Woetzel et al., 2020). In West Asia, the rising temperature trend in recent decades is
significant and robust. In the semi-arid region of Asia at mid-latitude from 1901 to 2009, the warming trend was strong with an in
crease of 2.4 ◦ C. Projections show that the surface air temperatures in Central Asia, according to different emission scenarios, will
increase by an average of 3 ◦ C to about 7 ◦ C for the period 2071–2100 compared to the period 1971–2000 (Ozturk et al., 2017).
Precipitation is expected to experience dramatic changes (decrease/increase) due to climate change in terms of pattern and
1
26th meeting of the Conference of the Parties.
2
intensity over this area. The average precipitation is reduced by 10–30% in JJA2 (the dry season) for Southeast Asia until the middle
and end of the 21 century and drying tendency prevails in the region (Tangang et al., 2020). Indonesia is an area where annual
precipitation is likely to decrease. In contrast, North Asia and parts of West Central Asia have observed significant positive change
trends (Gutiérrez et al., 2021). Extreme precipitation as a highly destructive phenomenon is also on the rise by climate change and
changes in monsoons, making South and South East Asia the world’s most vulnerable in this regard (Eckstein et al., 2021).
Additionally, with a high confidence level, researchers show that the sea-level rise due to climate change around Asia is faster than
the global average. Rising sea levels are creating problems for low-lying coastal areas, leading to coastal erosion and the destruction of
marine ecosystems and threatening the economy based on the coastal ecosystems (Mimura, 2013; Nicholls et al., 2021).
1.2. Economic effects of climate change in Asia
The projections show a negative impact on the socio-economic systems of the continent. However, the effects are not the same for
all, and the poorest countries and people will suffer the most. They are more vulnerable to the negative effects of increasing tem
peratures, declining precipitation, declining water resources and production, and destruction of ecosystems as they have a high de
pendency on climate-sensitive sectors like agriculture and fisheries. In Asian economies, these sectors are most exposed and vulnerable
with little capacity to develop and to implement adaptation strategies (Akram, 2012; IPCC, 2021).
A general report by the Swiss Re Institute (2021) shows that under a severe climate scenario (a 3.2◦ C-rise in temperatures), the
Asian economy will be hit hardest by climate change so that Asia and ASEAN would lose above 26% and 37% of GDP by 2048,
respectively, while the corresponding global loss is about 18%. Also, the economies of Middle East countries, most of which are in West
Asia, are among the most vulnerable regions that the loss is estimated to be more than 27%. The corresponding loss in South Asia, for
India, is 35% and for the Philippines and Malaysia in the southeast, reaches about 45%. According to the report, China is losing nearly
24% of its GDP, while the United States and the Europe are losing nearly 10%–11% (Swiss Re Institute, 2021). Thus, climate change is
increasingly affecting Asian countries while they have a lower coping capacity and are much more vulnerable to the impacts of climate
change. Accordingly, Asian countries face a real and serious threat in various dimensions of economic growth and food security,
leading to irreversible losses for them (Swiss Re Institute, 2021). Regarding the extent of the vulnerability and population exposed to
climate changes compared to the other regions, Asian countries deserve to be investigated more deeply.
1.3. Map of study areas
The map of Asian countries based on IPCC AR6 WGI reference regions is shown in Fig. 13: South Asia (SAS), Southwest Asia (WCA,
ARP), East Asia (EAS, ECA), Southeast Asia (SEA) and the Tibetan Plateau (TIB). The study countries in South Asia include five
countries (Bangladesh, India, Pakistan, Sri Lanka, and Nepal). Southwest Asia consists of five countries (Iran, Jordan, Lebanon,
Georgia, and Armenia); East Asia includes one country in the EAS and ECA areas (China). Finally, Southeast Asia consists of seven
countries (Cambodia, Indonesia, Malaysia, Laos, the Philippines, Thailand, and Vietnam). They were taken as a sample for this study.
North Asia (WSB, ESB, RFE)4 also referred to as Siberia, has not been surveyed due to its high latitude (close to the North Pole) and
different climates. It has been found that the economic impact of climate change on these regions is primarily positive, at least until the
end of the century. For example, Mongolia, which has a northern climate, will experience an 87% increase in GDP due to climate
change by the middle of the century (Auffhammer, 2019). The period was dictated by data availability for sub-regions of Asian
countries.
We have tried empirically explaining the relationship between climate change and economic growth in this area based on the
climate-econometric model, despite data limitations. To do this, an augmented Solow type model applied. The distinguishing feature of
the model is that it allows extending the model to include capital inputs far beyond physical capital. Especially, human and social
capital that were considered by Ishise and Sawada (2009) or environmental capital examined by Zhu et al. (2019).
The rest of this paper is organized as follows. In Section 2, we reviewed the literature on the economics of climate change with an
emphasis on the econometric specification of the climate-economy relationship. Our model specifications are introduced in section 3.
We discuss the applied empirical approach and data used to assess the impacts of climate change. A model has been developed in the
form of the Solow growth model with CES and Cobb-Douglas production functions. The estimations of these models are reported in
section 4. The main econometric results are discussed and compared in the following. Finally, section 5 concludes and presents some
implications.
2. Literature review
The importance of economic analysis to climate change has led to many attempts to provide theoretical foundations and empirical
models to identify the effects. The climate-economy relationship determines and projections the scope and extent of the effects of
climate change in the coming years. This relationship measured by various approaches, regardless of the type of approach, attempts to
2
JJA: June, July, August.
3
EAS (East Asia), ARP (Arabian Peninsula), SAS (South Asia), SEA (South East Asia), Australasia: NAU (Northern Australia), CAU (Central
Australia), EAU (Eastern Australia), SAU (Southern Australia), NZ (New Zealand), Small Islands: CAR (Caribbean), PAC (Pacific Small Islands).
4
WSB (west Siberia), ESB (east Siberia), RFE (Russian far east).
3
Fig. 1. A map of Asia based on IPCC consideration and AR6 WGI reference regions.
understand better the damage caused by climate change. The results of these studies provide an in-depth understanding that is useful
for designing efficient policies for mitigating and coping with climate change, as well as designing agreements to promote international
cooperation (Kalkuhl and Wenz, 2020; Newell et al., 2021). We try taking a comprehensive look at the literature as possible; thus, we
discuss the methods used and some of their results by focusing more on the macroeconometric method. Generally, as discussed briefly
below, there are three types of literature (Batten, 2018):
A group examined the effects of weather-related natural disasters on economic growth (macroeconomics of natural disasters). They
show a negative impact on short-term economic growth (Cuaresma et al., 2008; Raddatz, 2009; Cavallo et al., 2010; von Peter et al.,
2012; Hsiang and Jina, 2014; Berlemann and Wenzel, 2016; Fernando et al., 2021; Batten, 2018; Liu et al., 2019; Zhang et al., 2021).
The existing literature related to another group points out that gradual warming could reduce an economy’s potential growth rate
(macroeconomics of gradual global warming). They examine the economic damage function within the Integrated Assessment Model
(IAM) tools and show that in persistent changes of climate variables, the power and ability of the economy will be dampen in the long
run by a fall in the rate of capital accumulation, labour productivity, and productivity of other factors. In fact, the above description
shows that the literature distinguishes between short-term effects, extreme events, and long-term effects (Batten, 2018; Kalkuhl and
Wenz, 2020). They consider the role of investing in adaptation to respond to a long-term change and argue that sometimes adaptation
can reduce the negative effects of temperature shocks by half (Dell et al., 2009). In IAMs, climate and economic modules are linked by a
damage function. A damage function is a simplified expression of economic losses caused by climate change, which is defined as a
function of temperature anomaly (for more details e.g. Nordhaus, 2013; Tsigaris and Wood, 2019; Piontek et al., 2019; Zi-Jian et al.,
2020).5 Based on these types of models, the negative effect of climate change on the output reduces the amount of investment, which in
turn leads to a decrease in capital stock, GDP, and per capita consumption.6 These effects may be exacerbated if climate change slows
down technical progress in an endogenous growth framework (e.g., Nordhaus, 1994; Peck and Teisberg, 1992). However, these dy
namic effects are explicitly separated in some kinds of literature such as Fankhauser and Tol (2005). They draw attention to the direct
impact of climate change on the economy (affecting the output level) and the impacts of the prospect of future damages (or benefits) on
capital accumulation and hence affecting the rate of economic growth by using a damage function. However, economists are still
debating whether the impact is on the level or the growth rate of the economy or both (Batten, 2018), and in the recent empirical
literature, there is disagreement as to whether weather variables such as temperature affect the level of economic output or economic
growth (Schlenker and Auffhammer, 2018). Dell et al. (2012) have highlighted that higher temperatures reduced growth rates, not just
the level of output. Kalkuhl and Wenz (2020) also consider the effects on both the levels and growth of productivity. They show that
temperature considerably affects productivity levels and does not affect the permanent growth rate.
Finally, a more recent strand of literature estimates the effects using weather observations of temperature and precipitation and
their variation by panel regression and other scientific methods as macroeconomics of weather variation models (Howard and Sterner,
2017). These growing bodies of empirical literature estimated the effects on human activity and economic outcomes that were almost
the good starting point of them by Dell et al. (2012) and Burke et al. (2015). In some cases, these works predict much higher economic
losses compared to previous IAMs (Burke et al., 2015). Temperature and precipitation are applied as climatic variables, as climate
change affects temperature trends and precipitation patterns. Therefore, climate change may affect economic growth because of
fluctuations in temperature and precipitation (Islam et al., 2021; Berlemann and Wenzel, 2018; Ali, 2012). The literature reveals some
important points: First, they mostly emphasize the effects on the aggregate economy and GDP as the most common variable. Some
cases emphasize the sectoral output, such as industrial and agricultural output. Second, the climate change effect has mainly been
investigated using temperature and precipitation for studies based on time series data. Third, the most common approach has been
econometrics panel methods that identify the effects by exploiting their variations within economies over time. Since variations in
weather variables are strictly exogenous and stochastic, this approach can easily yield causative identification (Deschenes and
5
IAMs that are based on neoclassical growth theory pay attention to the dynamic effects, which are examined via capital accumulation, savings
rate and technical progress.
6
It is worth noting that, there are two potential channels to interpret the impacts of climate change on economic activity: influencing the level of
output and influencing an economy’s ability to grow (Dell et al., 2012).
4
Greenstone 2007; Deschenes 2014; Barreca et al., 2016) and can clearly isolate the effects of weather from time-invariant country
characteristics (Dell et al., 2012). Fourth, among the explaining variables, physical capital or the corresponding investment is the most
popular explanatory variable, which is followed by population-based components like labor, population growth, or human capital.
Fifth, they have been entered into the model in several alternatives such as linear and non-linear, moving average and anomaly from
the long-term trend of climate.7Finally, the literature shows impacts across climatic regimes (hot, cold and moderate climate), different
levels of economic growth-rich and poor countries- and at both country and regional level.
As far as the results of the recent strand of the literature are considered, three types of outcomes are observed. Generally speaking,
the negative effect of temperature on economic growth has been supported by most studies (Dell et al., 2014; Schlenker and Lobell,
2010; Pindyck, 2011; Ali, 2012; Waldinger, 2015; Abidoye and Odusola, 2012). However, there are exceptions to this, such as Koubi
et al. (2012), which do not provide evidence that temperature affects economic growth significantly. It is worth noting that there are
also empirical works indicating that weather effects may change in different directions depending on the extent of the changes and may
depict a threshold (N’Zué, 2018). It should be noted that the examined effects are limited to the study horizon and we may find
different effects by allowing a longer period. The results of limited studies like Deschenes and Greenstone (2007) confirm the positive
effect examined on the performance of the agricultural sector in the United States. Burke et al. (2015) and Colacito et al. (2018) are
examples of groups that show both the positive and negative effects of climate change on economic growth. Additionally, Sequeira
et al. (2018) evaluated the impacts of temperature and precipitation variations on both per capita GDP and industrial output. Inter
estingly, they suggest that the rising temperature has no negative effect on per capita GDP in the latter half of the twentieth century.
The results, according to the climate regime of the countries, show that rising precipitation also has a positive effect in hot and
temperate countries and a negative effect in cold countries. These empirical works highlight some points including the variables
applied, the extent of the effect of the climatic variable, the channels of influencing economic variables. They also provide a valuable
basis to compare the effects in developed and developing countries. The important implication is that climate change may affect both
developed and developing countries; however, the poor countries are more vulnerable to the effects of climate change. Dell et al.
(2012), show that higher temperatures have substantially negative effects on the economic growth of poor countries. In this regard,
Henseler and Schumacher (2018); Burke et al. (2015, 2018); Letta and Tol (2019) and Sequeira et al. (2018) also argued that the poor
countries compared to rich countries are strongly impacted by temperature. They concluded that weather fluctuations are an
important driver of reducing economic growth and international inequality, and that poorer countries are expected to be affected more
severely. The study by Colacito et al. (2018); Olper et al. (2021) and Kadanali and Yalcinkaya (2020) have been conducted specifically
in developed countries. Colacito et al. (2018) showed 1 ◦ F (approximately 0.55 ◦ C) rising summer temperature causes a reduction in
the annual growth rate of 0.15–0.25 percentages in state-level output in the USA. They also show that rising temperatures could slow
the economic growth by up to one-third in the next century. As another example in a developed economy, Olper et al. (2021) suggest,
based on their chosen NPS8 specification, less affected Northern (3%–20% for different RCP and horizon) in Italy while Southern
provinces are predicted to lose substantially from 10% to 40% under worst-case scenario of RCP8.5, which is characterized by an
average increase in temperature of about 4 ◦ C and without temperature boundary. These analyses forecast future economic outcome
according to expectations about future climate scenarios.
In terms of the extent of the study region, both the national level and multi-region studies have been conducted. Additionally, some
of them like Akram and Gulzar (2013); Li et al. (2020) and Olper et al. (2021) examined the effects provincially and found that some
provinces are more sensitive to variations in climate change due to their higher dependency on vulnerable sectors like agriculture and
depending on the geographical location. Additionally, there are empirical works studying at the national level (Nyangena (2016) for
Kenya; Togo’s Economy by Abdou-Razak et al. (2019); Belford et al. (2020) for Gambia and Islam et al. (2021) for Saudi Arabia’s
economy). The existing research is also geographically dispersed. Continuously several studies deal with the relationship between
weather variables and economic growth in Africa (see Odusola and Abidoye, 2015 9; Nyangena and Ruigu, 2018; Schlenker and Lobell,
2010; Kurukulasuriya et al., 2006; Mamane Bello and Malam Maman, 2015), but Asia as the continent of vulnerability has been
neglected and given less attention.
A brief review of the literature provides a good insight into and starting point to present the novel features of the current study. The
objective of the current research is to examine the effect of climate change on economic growth in Asia during the present century. The
novelty of the current study lies in our attempt to bridge the literature gap by extending the modeling framework to include damage
functions, flexible production function, and trade-related variables augmenting labor productivity. We propose a new and compre
hensive perspective to examine the climate-economy nexus in Asian countries. It makes our examination more comprehensive
compared to what is seen in the literature and assesses long-term projections of climate change effects for the different scenarios. In
particular, our contribution to the literature is presented as follows. First, based on the above descriptions, a few studies have focused
on vulnerable Asian countries, and the current study focuses on the selected Asian countries considered as one of the most vulnerable
regions. It addresses climate change in the context of developing economies which is an interesting case regarding the potential
vulnerability to climate change. Second, it uses the damage function, which is based on the temperature anomaly. The study applies
7
They exploited annual weather variation data to develop panel data of GDP and weather over time to avoid omitted variable bias. Additionally,
to control time and spatial unobserved heterogeneity, they include country and time fixed effects (Howard and Sterner, 2017).
8
Specifications of Newell et al. (2021) labeled as NPS.
9
Odusola and Abidoye (2015) showed that a 1 ◦ C increase in temperature causes a 1.58% decline in economic growth in Africa and temperature
shock as an unexpected one-degree standard deviation from the average reduces economic growth by 3.22% points. In the case of precipitation, the
corresponding value was found to be 6.7%.
5
various damage functions as the diversity of pessimistic and optimistic views that allow entering the uncertainty of scientific climate
models. We also compare scenarios of CMIP6 projections as the new generation of climate models. Third, we extend the production
factors to human, social, and environmental capital inputs, which have been explained in more detail in section 3. It provides an
outstanding opportunity to aggregate more production factors and to be closer to the real world compared to the current literature. It
also allows for seeing the environmental effects of the growth more accurately. Fourth, we develop a CES production function applied
in the augmented Solow growth model framework. This allows the possibility of testing the validity of Cobb-Douglas specification as
the most common form of the production function to examine the more flexible and more applied production technology. Finally, the
features mentioned above, are combined with technology endogeneity derived from trade variables. It provides an outstanding op
portunity to examine the more important driver of bolstering economic growth across countries that cannot be ignored. The framework
developed in the current study paves the way to extend the modeling structure to include other driving forces for which data is
available.
3. Methods and data
3.1. Model specifications
3.1.1. Cobb-Douglas production technology

We extend the production inputs to human, social, and environmental capital. In order to simplify the model, the empirical model
of this study is based on the augmented neoclassical production function. However, we alter the Cobb-Douglas production function by
considering some empirical developments. First, the technology or labor productivity (A) is assumed to depend on trade-related
variables such as trade openness, financial development, and foreign aid inflows like Rao (2010) and Alagidede et al. (2015). Sec
ond, we examine the CES production technology as the flexible production technology to test the constant returns to scale assumption
as the most common specification. To simplify the presentation, we begin with the neoclassical production function including physical
capital, in addition to labor input (L), and labor-augmenting technology level (A). The primary model is developed as follows:
Yit = Kitα (Ait Lit )1− α εit (1)
(2)
φ φ φ
Ait = Bt Fit 1 Oit 2 Mit 3
where Y is output, K is physical capital, L is the labor input, and A is the labor augmenting technology, ε is an error term such that ln
(εi ) ∼ (0, σ 2 ). F, O, and M are financial development, trade openness, and foreign aid inflows, respectively. More exposure to inter
national markets is assumed to have positive externalities in form of labor productivity progress. The trade-related variables have level
effects. Also, it is assumed that foreign aid inflows are effective on the level of technology at any point in time (Alagidede et al., 2015).
B stands for the stock of the knowledge. i and t depict country and time, respectively. Like Rao (2010) B is assumed to grow at the
constant rate of g:
Bt = B0 egt (3)
Substituting the productivity into the production function gives Eq. (4):
(4)
φ 1− α
Yit = Kitα (Bt Lit Fitφ1 Fitφ2 Mit 3 )
10
Now, we extend the production function to consider human, social, and environmental capital :
(5)
α β γ λ φ φ φ φ 1− α− β− γ− λ
Yit = Kk,it Kh,it Ks,it Kz,it (Bt Lit Fit 1 Oit 2 Fit 3 Mit 3 )
where Ki (t), i = k, h, s, z denotes physical, human, social, and environmental capital, respectively. Also, we impose the assumptions
that α, β, γ, λ ∈ [0, 1) and α + β + γ + λ ∈ [0, 1).
Cobb-Douglas (CD) production technology as the widely used and the most common specification might be considered a strong
assumption (Ishise and Sawada, 2009). However, the empirical studies are also inclined to substitution elasticities of close to 1
(Gechert et al., 2019). Thus, in order to allow for substitution, we developed a CES production function that tests the validity of the CD
specification. However, we begin by assuming a CD production technology that enables us to have a straightforward extension and to
develop an augmented form of the Solow growth model while the climate change variable is also incorporated.
For a Cobb-Douglas production function, the economy converges to a steady state with a balanced growth path in which the growth
rate of output depends on the growth of productivity and capital inputs. Suppose that the production function is given by Eq. (1) and
Eq. (2), and (3) present the behavior of the technology or labor productivity. Regarding that B in Eq. (3) is like A in the standard Solow
(1956) model, we define the effective labor per capita output as Y/ to derive the steady state growth path for production function
BL
presented in Eq. (1) as follows:
10
The inputs and their proxy variables have been discussed in session 3–2.
6
( )α
Yit Kit
(6)
α) α) φ
= Fitφ1 (1− Oφit 2 (1− Mit 3(1− α)
Bt Lit Bt Lit
α φ
(7)
α) φ α) φ
̃yit = ̃
kit Fit 1 (1− Oit 2 (1− Mit 3(1− α)
where
Yit
≡ ̃yit (8)
Bt Lit
˙
Regarding that in balance growth path ̃
k = 0, the Solow’s basic equation in effective labor is derived as follows:
yit
sit̃
̃
kit = (9)
nit + g + δ
or
( )1−1 α
sit
̃
kit = (10)
nit + g + δ
where n and g are labor and productivity growth rates, respectively. δ is the capital depreciation rate. Note that the depreciation
rate was not considered the same for different types of capital. Based on Ishise and Sawada (2009) social capital is depreciated more
than other capitals. So its depreciation rate (δs ) was considered higher than corresponding value for other capitals. Thus, the steady
state effective labor per capita income is expressed as follows:
( )α
y
sit̃
(11)
φ α φ α φ
̃y = Fit 1 (1− ) Oit 2 (1− ) Mit 3(1− α)
nit + g + δ
( )
α sit
lñ
y= ln + φ1 ln Fit + φ2 ln Oit + φ3 ln Mit (12)
1− α nit + g + δ
Eq. (12) is the steady state equation in which A depends on trade-related variables and can be estimated using time series or panel
data. We extend Eq. (12) considering the climate change effect. It is worth noting that this effect includes the direct effect on the output
known as the level effect and two more channels are assumed for the climate effect to influence the output, which are capital
depreciation and productivity reduction (presented in Eqs. (37) and (38)). Under the climate change effect, Eq. (10) will be as follows
(Tsigaris and Wood, 2016):
( )1−1 α
sit Dit
̃
kit = (13)
nit + g + δ
where D is the damage function and is defined as:

1
Dit = 1 − ( ) (14)
1 + π1 Tt + π 2 Tt2 + π3 Tt6.754
where Dit is the convex damage function, which depends on the temperature anomaly (Tt) relative to the pre-industrial level or long
term trend. We used N-Damage, W-Damage, and DS-Damage that π 3 is about zero, 5.073 × 10− 6 and 8.019 × 10− 5 , respectively (see
Weitzman, 2012; Dietz and Stern, 2015; Moyer et al., 2014).11 Thus, the corresponding steady state equation is presented as follows:
( )α
sit Dit̃y
(15)
φ α φ α φ
̃y = Fit 1 (1− ) Oit 2 (1− ) Mit 3(1− α)
nit + g + δ
Then, solving for equilibrium value of ̃ y, the effective labor per capita output can be presented by the following equation:
( )
α α sit
lñ
y= ln Dit + ln + φ1 ln Fit + φ2 ln Oit + φ3 ln Mit (16)
1− α 1− α nit + g + δ
For estimation, Eq. (16) is more convenient in the following form:
α α α
ln yit = a + gt + ln Dit + ln(sit ) − ln(nit + g + δ) + φ1 ln Fit + φ2 ln Oit + φ3 ln Mit + εit (17)
1− α 1− α 1− α
( )
where lny = YL and lnBt = ln B0 + gt with ln B0 = a + ε.
Given the extended production function of Eq. (5), which incorporates human, social, and environmental capital, the steady state
11
Tsigaris and Wood (2019) applied 0.002131 for π2 .
7
equation considering climate change effects is written as Eq. (18):

α+β+γ+λ α ( ) β ( ) γ ( )
ln yit = a + gt + ln Dit + ln sk,it + ln sh,it + ln ss,it
1− α− β− γ− λ 1− α− β− γ− λ 1− α− β− γ− λ 1− α− β− γ− λ
λ ( ) α+β+γ λ (18)
+ ln sz,it − ln(nit + g + δ) − ln(nit + g + δs )
1− α− β− γ− λ 1− α− β− γ− λ 1− α− β− γ− λ
+ φ1 ln Fit + φ2 ln Oit + φ3 ln Mit + εit
3.1.1.1. 3-1-2- CES production technology. The CES production function corresponding to Eq. (1) is specified as follows:
( ) ( )ρ1
Yit = Kk,it , ALit = αK ρk,it + (1 − α)(Ait Lit )ρ (19)
1
where ρ = 1 − σ and σ is the elasticity of the substitution. Also, for simplicity, we assume that A grows exponentially as follows:
At = A 0 e gt
(20)
Defining the effective labor input as Y/AL we can derive the steady state growth path:
( ρ )1ρ
̃yit = α̃
kit + (1 − α) (21)
yit ,
kit = nsitit +g+δ
Based on Eq. (13) assuming that under climate effect ̃ Dit̃
effective labor income is expressed as follows:
( ( )ρ )1ρ
yit
sit Dit̃
̃yit = α + (1 − α) (22)
nit + g + δ
( )ρ
sit Dit̃yit
̃yρit = α + (1 − α) (23)
nit + g + δ
ρ
̃yit
Dividing by , gives Eqs. (24)-(26):
1− α
( )ρ
1 α sit Dit
̃y−it ρ = − (24)
1 − α 1 − α nit + g + δ
( ( )ρ )− 1
1 α sit Dit ρ
̃yit = − (25)
1 − α 1 − α nit + g + δ
( ( )ρ )
1 1 α sit Dit
lñ
yit = − ln − (26)
ρ 1 − α 1 − α nit + g + δ
Based on the second-order approximation developed by Masanjala and Papageorgiou (2004), the CES production function
including the physical capital and effective labor is as follows:
( ) ( ) [ ( )]2
Yit α sit Dit 1 α sit Dit
ln = a + gt + ln + ρ ln + εit (27)
Lit 1− α nit + g + δ 2 (1 − α)2 nit + g + δ
In addition, in the same vein, CES specification including all capital inputs can be expressed as follows:
( ) ( ) ( ) ( )
Yit α sk,it Dit β sh,it Dit γ ss,it Dit
ln = a + gt + ln + ln + ln
Lit 1− α− β− γ− λ nit + g + δ 1− α− β− γ− λ nit + g + δ 1− α− β− γ− λ nit + g + δs
( ) { [ ( )]2 [ ( )]2
λ sz,it Dit 1 1 sk,it Dit sh,it Dit
+ ln + ρ α ln + β ln
1− α− β− γ− λ nit + g + δ 2 (1 − α − β − γ − λ)2 nit + g + δ nit + g + δ
[ ( )]2 [ ( )]2 [ ( )]2 [ ( )]2 [ ( )]2 [ ( )]2
ss,it Dit sz,it Dit sk,it sk,it sk,it sh,it
+ γ ln + λ ln − αβ ln − αγ ln − αλ ln − βγ ln
nit + g + δs nit + g + δ sh,it ss,it sz,it ss,it
[ ( )]2 [ ( )]2 }
sh,it ss,it
− βλ ln − γλ ln + εit
sz,it sz,it
(28)
The next extension to the CES specification is to assume that A depends on trade-related variables, including foreign development
index, trade openness, and foreign aid inflows, which presented in Eq. (2). Thus, the corresponding equation to Eq. (21) is written as
follows:
8
( ( )ρ )1ρ
yit
sit Dit̃
(29)
φ φ φ
̃yit = α + (1 − α)Fit 1 Oit 2 Mit 3
nit + g + δ
( )ρ
sit Dit̃yit
(30)
φ
̃yρit = α φ φ
+ (1 − α)Fit 1 Oit 2 Mit 3
nit + g + δ
ρ
̃yit
Dividing by the effective labor income can be derived as follows:
1− α
( )ρ
1 α sit Dit
̃y−it ρ Fitφ1 Oφit 2 Mitφ3 = − (31)
1 − α 1 − α nit + g + δ
( )− ρ ( )ρ
φ
− 1 − 2 − 3
φ φ
1 α sit Dit
̃yit Fit ρ Oit ρ Mit ρ = − (32)
1 − α 1 − α nit + g + δ
( ( )ρ )− 1
φ1 φ2 φ
− ρ3 1 α sit Dit ρ
(33)
− −
̃yit Fit ρ Oit ρ Mit = −
1 − α 1 − α nit + g + δ
( ( )ρ )
1 1 α sit Dit φ φ φ
lñ
yit = − ln − + 1 ln Fit + 2 ln Oit + 3 ln Mit (34)
ρ 1 − α 1 − α nit + g + δ ρ ρ ρ
The first term of the right hand side has an approximation as presented by Eq. (27). Thus, the estimation equation will is as follows:
( ) ( ) [ ( )]2
Yit α sit Dit 1 α sit Dit φ φ φ
ln = a + gt + ln + ρ 2
ln + 1 ln Fit + 2 ln Oit + 3 ln Mit + εit (35)
Lit 1− α nit + g + δ 2 (1 − α) nit + g + δ ρ ρ ρ
Also, considering all capital inputs, the corresponding estimation equation can be presented as follows:
( ) ( ) ( ) ( )
Yit α sk,it Dit β sh,it Dit γ ss,it Dit
ln = a + gt + ln + ln + ln
Lit 1− α− β− γ− λ nit + g + δ 1− α− β− γ− λ nit + g + δ 1− α− β− γ− λ nit + g + δs
( ) { [ ( )]2 [ ( )]2
λ sz,it Dit 1 1 sk,it Dit sh,it Dit
+ ln + ρ 2
α ln + β ln
1− α− β− γ− λ nit + g + δ 2 (1 − α − β − γ − λ) nit + g + δ nit + g + δ
[ ( )]2 [ ( )]2 [ ( )]2 [ ( )]2 [ ( )]2 [ ( )]2
ss,it Dit sz,it Dit sk,it sk,it sk,it sh,it
+ γ ln + λ ln − αβ ln − αγ ln − αλ ln − βγ ln
nit + g + δs nit + g + δ sh,it ss,it sz,it ss,it
[ ( )]2 [ ( )]2 }
sh,it ss,it φ φ φ
− βλ ln − γλ ln + 1 ln Fit + 2 ln Oit + 3 ln Mit + εit
sz,it sz,it ρ ρ ρ
(36)
Climate change is expected to affect the capital depreciation rate. Thus, the assumption of a constant depreciation rate is discarded.
Higher temperature leads to higher depreciation in the physical and other types of capital. Given T as temperature anomaly that affects
capital, the depreciation rate is as follows (Tsigaris and Wood, 2016):
δt = δ0 + δ1 Tt (37)
where δ0 is the base depreciation rate and δ1 = 0.01 included here. Next, we consider that climate change decreases the total factor
productivity growth as well. The impact of temperature anomaly on total factor productivity is as follows:
gA,0
gA,t = − γTt (38)
(1 + δA )t
gA,0 is the base rate, γ = 0.001 and δA = 0.011 are included here (Tsigaris and Wood, 2016).
3.2. Variables and data
In this paper, we relied on country-year panel data collected from different data sources for Asian countries. The criterion used in
selecting countries, in addition to the availability of data and technical limitations of estimation, was based on the economic and
climate regimes of countries.12 For economic data, we primarily use the World Development Indicators of the World Bank as our main
data set (World Bank, 2021). The panel of GDP per capita and other macroeconomic variables such as labor force, capital formation,
financial development index, trade, and net official development assistance is gleaned from this dataset for the period 1994–2017
12
Highly developed economies such as Japan, and South Korea have different economic regimes, and North Asian countries with polar climates
and countries on the border of continental Europe with the Mediterranean region were excluded.
9
(World Bank, 2021). Capital formation data applied to calculate the saving rate of physical capital. The last three variables were
considered as indicators of the state of technology in the countries, following the literature on the modern growth theory in which the
level of technology is assumed to depend on theses variables (Alagidede et al., 2015).
The other capital inputs as described above are human, social, and environmental capital. With respect to their complex nature,
here, we briefly discuss their definition and measurement of them and propose an approximation based on related specialized
literature.
Since human capital is defined as educational achievement through schooling, the average years of schooling are used as a proxy of
human capital in most literature (Égert et al., 2020; Campbell and Üngör, 2020; Zhang and Wang, 2021; Hu, 2021; Farajzadeh et al.,
2022). According to data from the World Bank for Asian countries, we also applied the percentage change in the average years of labor
force schooling as a measure of human capital savings.
Social capital may be characterized by social relationships, networks, and associations, which create an informal form of in
stitutions and organization. Some of the literature also introduces trust and trust-based networks, civil society participation, and
membership in civic organizations. In the economic sphere, social capital in the form of participation and trust facilitates information
between economic actors, reduces transaction costs, and produces shared knowledge that is essential for innovation activities in the
economy (Afonso et al., 2012; Forte et al., 2015; Salahuddin et al., 2016; Thompson, 2018). In this context, the definitions of social
capital include qualitative aspects, and finding a proxy variable for it, is controversial. Regarding limitations and following the
literature, here, we used civil society participation.
Environmental or natural capital is a stock that creates a flow of natural or ecological services (Costanza and Daly, 1992; Mancini
et al., 2017) that is the basis for a criterion known as Ecological Footprint (Wackernagel et al., 2002; Monfreda et al., 2004). Ecological
Footprint is considered as one of the most appropriate and widely used measures of natural capital in the literature. Accordingly, we
used the percentage change in this flow variable as the saving rate of environmental capital. More details are beyond the scope of this
paper and can be found in related literature.13 We extracted the Asia countries per capita Ecological Footprint from the Global
Footprint Network (2021). The latest data are available for 2017.
The last set of data is anomaly temperature, we took the climate data on the annual mean temperature and projections of future
temperature from the climate database of the World Bank Climate Change Knowledge Portal (CCKP, 2021) based on CMIP6 by 2100
for selected Asian countries.
We used five scenarios of SSP based on the Coupled Model Intercomparison Project 6 (CMIP6). They will provide multi-model
climate projections based on alternative scenarios. These scenarios included SSP1-1.9, SSP1-2.6, SSP2-4.5, SSP3-7.0, and SSP5-8.5.
The global anomaly temperature under the SSP scenario of CMIP6 is also shown in Fig. A.1 in Appendix A. The selected countries
are listed in detail in Section 1-3. The data series stationarity is tested using conventional tests such as Fisher type tests of ADF and
Phillips Perron tests (proposed by Maddala and Wu, 1999; Choi, 2001). The results are not presented here for brevity. Unit root test
results support the stationarity in the applied series.
4. Results and discussion
This section is composed of four parts. First, the estimation results are presented. For the macroeconomic production function, we
estimated CES and Cobb-Douglas, which are two functions used extensively. CES production functions are the flexible forms that are
used to test the constant returns to scale assumption or Cobb-Douglas production function. Then, based on the estimates, output level
and capital-worker ratio pathway are projected under future climate change scenarios in the following sections (4–2 & 4–3). Based on
the previous descriptions, for future temperature increases, SSP scenarios from CMIP6 are considered. Finally, the change in the output
and capital per worker is reported for all SSP scenarios compared to the baseline option (No Damage) in 2100 (Table 3).
4.1. Estimation results
First, it is examined which functional form mentioned above is better able to forecast the Asia’s economy. Based on the estimation
result of the CES production function, it was decided to estimate Cobb-Douglas since its results are more appropriate. Therefore, we
conclude that the Asian economy’s underlying production technology takes the Cobb-Douglas form. It is noteworthy that three classes
of damage functions including N-Damage, W-Damage, and DS-Damage were applied. For output level damage, all the damage
functions were applied in the estimation process. However, in order to simplify the manuscript as much as possible, in the other
specification in which the capital and productivity damages are taken into consideration in estimation, only W-Damage function that is
a moderate case was examined. All examined scenarios are listed in Appendix A (Table A.1).
13
The ecological footprint is measured as the equivalent biologically productive land and sea area or the area of land and ocean required sup
porting the consumption in a country calculated in global hectares. To measure the ecological footprint, the level of consumption and resource
availability are converted into the area equivalent of biological productive ecosystems that are required. Accordingly, the ecological footprint can be
considered a flow variable of natural or environmental capital, which is referred to as the income of the natural capital in the literature. Different
data are applied to calculate the ecological footprint including build-up land, carbon, cropland, fishing grounds, forest products, and grazing land
that all are converted into global hectares (Wackernagel et al., 2014; Mancini et al., 2017).
10
Table 1
The CES estimation results.
Model 1 Model 2 Model 3 Model 4 Model 5 Model 6
T0_ NO Damage T0_W Damage T1-No Damage T1_W Damage T2-No Damage T2_W Damage
Implied α 0.0315 (1.75) 0.0309 (1.60) − 0.0094 (− 0.90) − 0.0081 (− 1.06) − 0.0095 (− 0.94) − 0.0084 (− 1.05)
Implied β − 0.0030 (− 0.26) − 0.0013 (− 0.09) − 0.0004 (− 0.47) 0.0000 (− 0.05) 0.0002 (0.25) 0.0005 (0.44)
Implied γ − 0.0165 (− 0.70) − 0.0134 (− 0.50) 0.0038 (1.06) 0.0036 (1.22) 0.0035 (1.04) 0.0032 (1.17)
Implied λ 0.0589 (3.90) 0.0598 (3.90) 0.0232 (1.71) 0.0227 (1.85) 0.0247 (1.72) 0.0241 (1.80)
ρ 0.9430 (1.54) 0.8754 (1.33) − 4.4481 (− 0.92) − 5.0891 (− 1.06) − 4.4308 (− 0.92) − 4.8869 (− 1.06)
φ1 _ _ − 0.00032 (− 2.04) − 0.00035 (− 2.16) − 0.00036 (− 2.27) − 0.0004 (− 2.50)
φ2 _ _ 0.00006 (0.65) 0.0001 (1.80) 0.00007 (0.56) 0.00009 (0.99)
φ3 _ _ _ _ 0.041 (1.85) 0.040 (1.53)
lnDit _ 0.076 _ 0.018 _ 0.019
R2 0.99 0.99 0.99 0.99 0.99 0.99

J stat. 59.08 (0.000) 56.12 (0.000) 47.09 (0.001) 51.83 (0.004) 47.66 (0.001) 53.15 (0.003)
Note: t-values of the coefficient are presented in parentheses.
4.1.1. Estimation of CES production function

Although the CES specification has been popular theoretically and provides a more flexible form of production technology, it is non-
linear in parameters and not easy to work with, especially when inputs are much and this estimation frequently performs poorly and
has some limitations (see Henningsen and Henningsen, 2011). Our estimation problem is more challenging since further augmentation
of capital inputs is considered. Despite the estimation difficulties, the CES production functions were also estimated under different
assumptions for technology developed in the method (T0, T1 & T2 shown in Table A.1 in Appendix A). Also, the effect of climate
change is examined under W-Damage function as a moderate case. These results under the different assumptions for technology and
climate change effect are reported in Table 1. The implied elasticity coefficients are presented in the upper block, while the specifi
cation diagnostic statistics are presented in the lower block. As the econometric results show, the estimated elasticity of the substi
tution parameter, ρ, is not significant statistically, indicating that the model is reduced to Cobb-Douglas specification. In addition to the
statistical significance of the substitution parameter that is strongly rejected, some implications provide more evidence to replace the
CES specification with Cobb-Douglas one. First, contrary to the current literature (e.g. Ishise and Sawada, 2009) the capital inputs’
return and especially that of the physical capital is not significant and in some specifications, its contribution to economic growth is
unexpectedly negative and clearly reveals that the CES specification has not a seemingly good empirical fit across our data sets and is
not suitable for use in the Asian economic forecasts. Furthermore, the GMM method was applied to estimate the coefficients; however,
the J-statistics show that the null hypothesis that the over-identifying restrictions are valid is rejected. In other words, the results
indicate that the parameters of the CES specification do not demonstrate a meaningful and significant economic relationship for
continuing the path of projection. Therefore, CES for the Asian macroeconomic production function has no economic content and it can
be concluded that Asian macroeconomic production functions are technically close to the Cobb-Douglas form. It is noteworthy that the
choice between CES and Cobb-Douglas as a macroeconomic production function is common in growth models, especially for cross
country comparisons (Duffy and Papageorgiou, 2000).
4.1.2. Estimation of Cobb-Douglas production function

Cobb-Douglas specifications also include different assumptions for technology developed (T0, T1 & T2) and three damage functions
(N, W, & DS Damage) in output level damage and damage to deprecation rate (δ_Damage) and growth rate of total factor productivity
(labor productivity) (TFP_Damage). The estimated coefficients of the returns to capitals and the output changes with respect to the
climate change effect are presented in elasticity form. The first row displays the output elasticity with respect to physical capital. In
terms of the absolute values, we may consider the coefficients in two groups. The first one includes those that the elasticity coefficients
range around 8–9 percent. The second group is composed of those with values lower than 3 percent. The former range belongs to those
specifications that temperature directly affects output level. The latter includes the specification that higher temperature results in
higher depreciation of physical capital or damage to productivity growth. In other words, higher depreciation in capital and labor
productivity results in a lower contribution of the physical capital, which in turn results in lower per capita output. Contrary to
physical capital contribution, human capital contribution to per capita output is insignificant.
The contribution of the social capital to output per worker is significant. For the first four specifications that include climate
damage to the level of the output, the elasticity of the output per worker with respect to social capital is 0.044–0.065 and for Models 7,
8, 11, and 12 that correspond to Models 1 and 3, even higher values are obtained. Additionally, like physical capital, damage to capital
and productivity dampens the social capital return even much stronger than what happens for physical capital. The underlying reason
is the higher depreciation of social capital, which is in line with the empirical works (Romer, 1989; Nadiri and Prucha, 1996; Ishise and
Sawada, 2009).
As mentioned before, environmental capital is the contribution of the current study to the literature that may account for a sig
nificant part of output changes. The distinguishing feature of the elasticity coefficient of environmental capital compared to other
capital inputs is its lower variation throughout different specifications. The elasticity coefficients range from 0.044 to 0.058 for all 14
specifications. The interesting point is that its coefficients are higher for specifications that contain capital damages (Models 5, 9, 13).
11
Z. Farajzadeh et al.
Table 2
Cobb-douglas estimation results.
Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8 Model 9 Model 10 Model 11 Model 12 Model 13 Model 14
T0_ NO T0_N T0_W T0_DS T0_W_δ T0_W_TFP T1-No T1_W T1_W_δ T1_W_TFP T2-No T2_W T2_W_δ T2_W_TFP
Damage Damage Damage Damage Damage Damage Damage Damage Damage Damage Damage Damage Damage Damage
Implied 0.0912 0.0904 0.088 0.087 0.0284 0.020 (1.85) 0.087 0.083 0.0284 0.027 (1.99) 0.084 0.078 0.031 0.013 (2.5)
α (5.57) (6.31) (3.54) (4.24) (1.87) (3.64) (3.35) (1.64) (3.38) (2.72) (1.83)
Implied β 0.0001 0.0002 0.004 0.004 0.0018 0.002 (0.32) − 0.003 0.001 0.0032 − 0.006 − 0.003 0.001 0.0005 0.0024
(0.014) (0.04) (0.43) (0.54) (0.33) (− 0.38) (0.12) (0.43) (− 1.22) (− 0.45) (0.19) (0.06) (0.34)
Implied γ 0.0440 0.044 0.065 0.065 0.0053 0.019 (1.29) 0.072 0.063 0.0019 0.0427 0.074 0.067 0.004 0.004 (0.54)
(4.77) (4.99) (3.78) (4.68) (− 0.35) (3.93) (3.22) (0.07) (1.98) (4.17) (3.41) (0.17)
Implied λ 0.0444 0.044 0.044 0.044 0.0529 0.049 (4.53) 0.049 0.049 0.0575 0.0477 0.048 0.048 0.055 0.0452
(5.02) (4.97) (6.15) (4.36) (4.74) (6.80) (6.74) (7.85) (4.13) (6.74) (6.55) (7.77) (6.72)
φ1 _ _ _ _ _ _ 6.3E-05 0.0001 − 2.94E-05 0.00012 0.0002 0.0002 4.48E-05 − 6.97E-05
(0.513) (0.86) (− 0.29) (1.32) (1.7) (1.69) (0.44) (0.70)
φ2 _ _ _ _ _ _ − 1.7E-04 − 0.0002 − 0.00029 − 0.0007 − 0.0005 − 0.0005 − 0.0005 − 0.00055
(− 0.63) (− 0.14) (− 1.57) (− 3.34) (− 1.65) (− 2.22) (− 2.37) (− 1.52)
12
φ3 _ _ _ _ _ _ _ _ _ _ 0.074 0.073 0.056 0.029687

(2.26) (2.23) (1.98) (0.35)
ln Dit _ 0.218 0.251 0.250 _ _ _ 0.243 _ _ _ 0.241 _ _
εD - (SSP1- _ − 0.13 − 0.15 − 0.18 _ _ _ − 0.15 _ _ _ − 0.15 _ _

1.9)
εD - (SSP1- _ − 0.23 − 0.28 − 0.45 _ _ _ − 0.27 _ _ _ − 0.27 _ _
2.6)
εD - (SSP2- _ − 0.55 − 0.83 − 3.54 _ _ _ − 0.81 _ _ _ − 0.80 _ _
4.5)
εD - (SSP3- _ − 1.21 − 4.16 − 17.49 _ _ _ − 4.04 _ _ _ − 4.00 _ _
7.0)
εD - (SSP5- _ − 1.83 − 10.55 − 22.80 _ _ _ − 10.22 _ _ _ − 10.12 _ _
Environmental Development 47 (2023) 100898

8.5)
R2 0.99 0.99 0.99 0.99 0.99 0.99 0.99 0.99 0.99 0.99 0.99 0.99 0.99 0.99
J stat. 14.90 14.08 10.83 10.87 19.96 26.77 (0.08) 17.01 22.49 31.09 (0.08) 22.39 (0.10) 16.81 21.99 29.19 30.11 (0.07)
(0.31) (0.51) (0.76) (0.76) (0.13) (0.52) (0.26) (0.54) (0.34) (0.11)
Table 3
Change in output and capital per worker compared to the baseline case “No Damage” under all scenarios in 2100 (Percentage).
Model SSP1-1.9 SSP1-2.6 SSP2-4.5 SSP3-7.0 SSP5-8.5
Output per worker T0_No Damage

T0_N Damage − 0.31 − 0.59 − 1.43 − 3.18 − 4.85
T0_W Damage − 0.92 − 1.26 − 2.98 − 12.11 − 24.24
T0_DS Damage − 1.10 − 2.37 − 11.66 − 35.62 − 46.74
T0_W_δ Damage − 1.12 − 0.74 − 1.12 − 10.77 − 23.54
T0_W_TFP Damage − 22.99 − 24.07 − 26.19 − 32.28 − 40.00
T1-No Damage
T1_W Damage − 0.22 − 0.38 − 2.12 − 11.36 − 23.64
T1_W_δ Damage − 1.89 − 1.50 − 0.38 − 10.12 − 23.00
T1_W_TFP Damage − 26.54 − 27.48 − 29.33 − 34.64 − 41.37
T2-No Damage
T2_W Damage − 0.32 − 0.48 − 2.22 − 11.42 − 23.66
T2_W_δ Damage − 1.89 − 1.48 − 0.40 − 10.12 − 22.98
T2_W_TFP Damage − 22.42 − 23.51 − 25.64 − 31.77 − 39.54
Capital per worker No Damage
W_δ Damage (Other Cap.) − 7.07 − 7.55 − 8.61 − 10.15 − 11.28
W_δ Damage (Social Cap.) − 12.61 − 13.48 − 15.36 − 18.10 − 20.12
W_TFP Damage − 41.38 − 42.88 − 44.78 − 46.39 − 48.90
Fig. 2. Projected output level pathway by 2100 under SSP2-4.5 scenario in the study region.
13
Fig. 3. Projected output level pathway by 2100 under SSP5-8.5 scenario in the study region.
Generally, we may conclude that after the physical capital, environmental capital accounts for the highest contribution to the output
per worker or economic growth.
Generally, the contribution of the trade-related variables is not significant. However, the introduction of productivity evolution as a
function of trade-related variables resulted to increase in higher elasticity for some capital inputs, especially for social capital. This fact
is obvious if Model 6 and Model 10 are compared.
At the bottom of Table 2, the output elasticities with respect to temperature are presented. As far as N-Damage option is considered,
only under SSP3-7.0 and SSP5-8.5 temperature increase have significant effects on output with elasticity values of 1.21 and 1.83,
respectively. The corresponding elasticity values under W-Damage option are much higher as they amount to 4.18 and 10.55. Higher
damage is observed for DS-Damage option and the elasticity values for SSP2-4.5, SSP3-7.0 and SSP3-8.5 are 3.54, 17.49, and 22.80,
respectively. The slight effect of trade via productivity growth is observed in Models 8 and 12 compared to Mode 3. Additionally, the
specification diagnostic statistics are presented in the last block.
4.2. 4-2-Projected output level under climate change scenarios
All the climate scenarios are considered, for the space limitation, the results for SSP2-4.5 and SSP5-8.5 are presented. Figs. 2 and 3
illustrate the results for Scenario SSP2-4.5 and SSP5-8.5, respectively. In panel a, we just compare projected output per worker under
three different types of damage functions by no damage when the output level is affected. Generally, the effect of N-Damage and W-
Damage is similar to those of the No Damage scenario and the deviations in output per worker by 2100 are 1.43 and 2.98 percent only
(Table 3). However, under DS-Damage option, the corresponding value is 11.66%. In other words, the output level is strongly affected
by the damage function. Panel b examines the damage to capital inputs and productivity growth while the W_Damage option is
14
considered. There is a slight difference between the scenarios that capital is damaged (T0_W_δ Damage) and the one that output level is
affected by temperature increase (T0_W_ Damage). While the output per worker decreases by 2.98% under the T0_W_ Damage option,
the corresponding value for T0 _W_δ Damage is around 1.1% (Table 3). In other words, under the same option for the damage function,
the output reduction is lower when the level effect happens. Comparing the estimation results of Models 3 and 5 may provide an
interesting implication. As the results of these specifications show, under capital damage, the contribution of the non-capital inputs,
including labor and technology increases, providing a chance to dampen the adverse effects of higher temperature. Contrary to capital
damage, higher temperature damage to productivity growth induces a significant reduction in output per worker, expecting to reduce
by more than 26% in 2100 compared to the No Damage option (Table 3).
Panel c and d illustrate the damages to output levels, capital, and productivity growth, while labor productivity is supposed to be
determined by trade-related variables as well. The results show that under output level and capital damage options, trade may dampen
the adverse effect slightly and insignificantly, while for those of productivity damage, the output per worker decreases more,
amounting to around 30% by 2100 under T1 options (Table 3). This may stem from the fact that climate change and its adverse effects
are global and may lead to affect more the productivity growth since the trade is expected to increase the exposure to the global
environment.
Fig. 3 presents the output per worker changes under SSP5-8.5 in which much stronger climate effects are considered. Under the
damage to output level, even for W-Damage option in the last two decades of the examination horizon, output per worker tends to
decrease and it falls by 24.2% compared to No Damage option in 2100 (Table 3). The turning point for the DS-Damage function is 2055
and it falls apart from the No Damage scenario by around 47% in 2100 (Table 3 and Fig. 3-Panel a). As shown in Panel b of Fig. 3, the
effect of damage to capital inputs is similar to output level damage and their difference is less than 1% at the end of the study horizon
(T0_W Damage and T0_ W_δ Damage). The damage to productivity growth leads to a reduction in output per worker around 2065,
where climate damage outweighs the productivity growth, leading to a downward trend. This results in a 40% reduction in output at
the end of the study horizon. Panel c and Panel d show the damage options under trade openness scenarios. As we may compare with
the corresponding scenarios from Panel a and Panel b, trade variables have an insignificant contribution to the climate effect. The
possible stronger effects on output imposed by productivity damage under climate change has been pointed by Nordhaus (1994) and
Peck and Teisberg (1992). Fankhauser and Tol (2005) also suggest the possibility of a large indirect effect for climate change.
4.3. Projected capital-worker ratio pathway under climate change scenarios
Fig. 4 shows the capital per worker ratio pathway by 2100. As observed for the output level, damage to productivity induces a
strong reduction in capital accumulation and is stronger than what is observed for capital damage. It is worth noting that in terms of
capital-worker ratio, there is a much lower difference between the scenarios when damage to capital is considered. In other words, the
main driving force of capital accumulation changes is the incidence of damage, and damage to productivity for all forms of capital, and
under both scenarios (SSP2-4.5 and SSP5-8.5) results in a significant reduction in capital growth. A higher depreciation rate was
applied for social capital (following Romer, 1989; Nadiri and Prucha, 1996; Ishise and Sawada, 2009), thus, its accumulation is
affected stronger than other capital inputs. However, the extent of changes for social capital is stronger than what is observed for other
forms of capital. In other words, the difference between the effects of SSP2-4.5 and SSP5-8.5 for social capital is much higher than the
corresponding difference for other capitals. The damage to capital may be considered as the direct effect of temperature increase on
capital accumulation, while the effect of damage to productivity growth on capital accumulation is indirect since it affects capital
accumulation via damage to output. Generally, the damage to capital in the study horizon tends to distance the capital accumulation
from No-Damage option; however, the general trend is preserved. This tendency to increase the distance over time may be resulted
Fig. 4. Comparison of projected capital-worker ratio pathway to 2100 under SSP2-4.5 and SSP5-8.5 scenarios.
15
from the dynamic nature of the capital accumulation as suggested by Fankhauser and Tol (2005). Damage to productivity makes a
significant divergence, increasing rapidly after around 2060.
4.4. Change in output and capital per worker compared to “no damage” option in 2100
To more accurately examine the effect of climate change, the percentage of change in the output and capital per worker compared
to the “No-Damage” option in 2100 is reported (Table 3). In T0 models, the decrease in the output per worker in the DS-Damage is
higher than in N and W-Damage model, so that it is more than 35 percent under SSP5-8.5 and SSP3-7.5 scenarios and 10 percent or less
under other scenarios. The corresponding loss is much lower for N-Damage model and less than 5 percent for all types of SSP scenarios.
For the T0_W Damage model, the percentage reduction of the output level is less than 3 percent under the first three scenarios. It
reaches 12 and 24 percent loss under SSP3-7.0 and SSP5-8.5 scenarios, respectively. Also, in the T0 group, the highest percentage of
output reduction is from 23 to 40 percent compared to baseline of No Damage that is related to W_TFP Damage. The reason is probably
that the output reductions by the depreciation rate and temperature rises are low under these scenarios. The reduction of output level
in the T2 group compared to the baseline option of No Damage is almost similar to the T1 group. In T1_W_TFP Damage option, the
reduction of output is 26.54–41.37 percent, while the corresponding amount for T2 is lower and ranges from 22.42 to 39.54 percent. It
can be attributed to the greater contribution of variable known as technology or productivity growth.
The reduction in capital per worker is relatively high compared to the No Damage as a baseline option in 2100. In the δ_Damage
option, the percentage reduction is not similar for all types of capital. Accordingly, the reduction in social capital is almost twice as
high as in other types of capital. The reduction of social capital ranges from 12.6 to 20.12 percent and corresponding value for other
types of capital is 7.07–11.28 percent for different SSP scenarios, which shows the greater sensitivity of social capital. Additionally, the
decrease in the TFP_Damage scenario is much higher than that in the δ_Damage option and it falls in the range of 41–49 percent for
different SSP scenarios. The comparison of SSP5-8.5 scenarios with the No Damage option shows that capital per worker is almost
halved (49%), if TFP is damaged. Additionally, for this scenario, the capital reductions of TFP_Damage scenario compared to δ_Damage
options will be 4.3 and 2.4 times for social capital and other types of capital, respectively.
5. Conclusion
Temperature increase, as the most immediate and obvious consequence of climate change, can be the foremost driver for
decreasing effects on economic growth. We have attempted to quantify these economic impacts of climate change on Asian countries,
which are considered among the most vulnerable regions in the world (Eckstein et al., 2021; Akram, 2012; IPCC, 2021; Swiss Re
Institute, 2021). This research applied a macroeconomic-climate modeling approach to examine these effects. The current study in
cludes some features in modeling and providing a climate-economy framework that may contribute to the literature to develop more
flexible models based on the intended objectives and available data.
We have used an extended version of the Solow growth model by considering different types of capital as input, including physical,
human, social, and environmental capital. It is worth noting that the current research clarifies the role of environmental capital, which
has not been addressed adequately. Additionally, we have assumed total factor productivity as the function of the trade-related
variables following Rao (2010) and Alagidede et al. (2015).
Our approach provides a method that can help to examine the effects of climate change without applying IAM tools. In fact, the
main advantage of this approach rests on empirical techniques varieties, which compared to the IAMs; we may incorporate more
capital inputs like environmental services that have recently been considered (Gollier, 2010; Traeger, 2011; Zhu et al., 2019). We have
taken a step forward in quantifying and characterizing the role of environmental capital. Another advantage of the applied model is
that it uses saving rate variables instead of capital accumulation, which the related data for savings are more accessible than the capital
one. Especially, quantifying the capital stock for some of them, like social capital, is difficult. Finally, we examined the effect of climate
change on capital accumulation and other dimensions that can affect Asia’s growth. Such studies can improve the empirical basis and
its strength for examining the economic impacts of climate change is essential both as an area of academic inquiry and as input into
climate adaptation and mitigation policy decisions (Diaz and Moore, 2017).
Additionally, we used a damage function that is fit to link aggregated damage of temperature increase to economic activity,
directly. Three classes of damage functions, including N-Damage, W-Damage, and DS-Damage, have been considered. The effects of
climate change were examined through three channels, including effects on output level, capital depreciation rate, and labor pro
ductivity growth. The first channel examines the direct damages of climate change to output, while the two other ones address the
output changes related to damages to capital and productivity growth. Damage functions and the related global coefficients are the
climatic section of the framework that are incorporated in economic modeling to build a climate-economy nexus.
Based on the above brief, we estimated 14 models. It is worth noting that we specially have paid attention to the different rates of
social capital depreciation as pointed out in the empirical studies (Romer, 1989; Nadiri and Prucha, 1996; Ishise and Sawada, 2009).
SSP scenarios of CMIP6 as future climate scenarios were considered, including SSP1-1.9, SSP1-2.6, SSP2-4.5, SSP3-7.0, and SSP5-8.5.
We have applied a data set of panel data from 18 Asian countries. The countries are from different regions of the IPCC AR6 WGI
reference map.
In this framework, two functional forms were estimated, including constant elasticity of substitution (CES) and Cobb-Douglas
production functions, using the GMM estimation method. Based on our econometric results, the elasticity of the substitution
parameter (ρ) is not significant statistically; thus, we have chosen the Cobb-Douglas functional form to continue as Asian economy’s
underlying production technology. Indeed, this fact shows the lower substitution ability of the production inputs, which is expected to
16
make the Asian countries more vulnerable to climate effects since Tsigaris and Wood (2019) found lower damage for the production
technology with the substitution elasticity of greater than one. The possible implication from the applied method is that in addition to
the driving forces of output like capital accumulation and productivity drivers, the flexible production technology may contribute
coping with the adverse climatic effects as suggested by Farajzadeh et al. (2022).
The reported results include the estimation coefficient of different models and charts of projected trends of the effect of climate
change by 2100. Our results provide an underpinning for assessing the pathway of the growing Asian economy and can play a central
role in evaluating the impacts of climate policies. Like Ishise and Sawada (2009), the econometric results show that physical capital
accounts for the highest contribution to the output per worker, followed by environmental capital. However, the main characteristic of
environmental capital is that its contribution has lower variation. It seems that environmental capital, after physical capital, makes the
highest contribution to economic growth in Asia. As a consequence of the above, the results agree with Haseeb et al. (2021) and Khan
et al. (2022), who state that environmental capital and natural resources drive economic growth, and in developing countries, the
magnitude of the coefficients is more significant, because they have more substantial economic dependence on natural resources.
Considering the lower elasticity of substitution or difficulty in substitutions, growing scarcity in environmental capital will strongly
bind, slowing down the growth. In the same vein, it can be concluded that under the climate change effects, more scarcity of these
capital inputs will be determinant, needing more attempts to increase the efficiency of using environmental capital. In other words,
Asian countries are confronting two significant restrictions; first, the lower flexibility of production function that restricts the envi
ronmental capital replacement with other inputs, and second, the higher contribution of the environmental capital in output pro
duction, which leads to a more binding role under growing scarcity conditions, known as a drag on growth as suggested by Romer
(2012). Additionally, the higher contribution of physical capital to production may slow the output growth more if the saving rate is
not high enough. Although foreign investment may be considered a solution to reduce the restrictions mentioned above; however, as
the results showed, there is a slight spillover effect for this option since an insignificant contribution was obtained for trade-related
variables. Despite this result, Rao (2010) reports a significant contribution for some Asian countries like Singapore, Korea, Hong
Kong, and Malaysia, which are more industrialized compared to the countries we considered, indicating a different situation for
developing countries. Accordingly, our results provide another evidence of vulnerability for developing economies that is in line with
empirical works (Henseler and Schumacher, 2019; Burke et al., 2015, 2018; Letta and Tol, 2019; Sequeira et al., 2018; Swiss Re
Institute, 2021; Piontek et al., 2019).
The contribution of social capital to production function is significant, which agrees with the findings of Ishise and Sawada (2009);
however, its greater depreciation leads to higher damage to the growth path. This suggests that social capital, as a channel, provides an
opportunity for significant damage. It is worth noting that social capital may include some qualitative aspects that deserve to be
addressed in future studies. Despite the substantial contribution of social and environmental capital, physical capital remains the most
essential capital input, indicating the lower capital accumulation in the Asian economies and the potential to provide investment
opportunities. Accordingly, higher savings rates may provide higher economic growth, especially in some types of knowledge accu
mulation like learning by doing; higher physical accumulation is expected to have a positive externality on productivity increase, as
reported by Rao (2010).
As far as output per worker is considered, the main driving force of output changes is damage function and especially damage to
productivity growth, while damage to output level and even capital accumulation is significantly moderate. Thus, more attempts are
required to develop technologies resistant to climate change effects. Capital-embodied technologies may contribute dampening the
adverse effects of climate change on productivity. It was also found that trade openness has an insignificant contribution to effects
induced by climate change, indicating the global nature of the climate effect. In other words, findings of trade-included models show
that trade variables have not perceptibly weakened the effects of climate change and temperature increase on Asian economies.
Contrary to these results, Rao (2010), for more industrialized Asian countries, found a significant effect of trade openness on economic
growth. It is worth noting that we excluded the more industrialized Asian countries like Japan, and South Korea to have a more
homogenous panel of countries. As suggested by Rao (2010), there may be some benefits in trade openness that the Asian countries
need to be more integrated with the global economy since trade openness is not expected to play an effective role in the early stages of
development. This may bring more hope to the Asian economies that there are some opportunities for more integration with the global
economy that they can be benefited which in turn may provide some opportunities to dampen the adverse effects of climate change.
The projected pathways show how future increased temperature will influences economic outcomes such as output level and
capital-worker ratio in Asia’s economy by 2100. Overall findings show that climate change affects the output level of Asian countries in
all scenarios, and significant negative climate change impacts are stable over time. We project considerable losses of output level for
the severe scenario of SSP5-8.5 by 2100 in Asia, especially in TFP_Damage models. Accordingly, if increasing temperature damage the
productivity of the factors of production, the negative effect of climate change on the output will intensify. Capital per worker is mainly
affected by the type of damage rather than the climate scenario, for all scenarios (SSP), damage to productivity leads to much stronger
effects and lower capital accumulation.
Attempts to keep the temperature increase around 2 ◦ C, compliance with international agreements, will result in income loss that is
much more acceptable compared to SSP5-8.5 by 2100. However, the extent of damage is strongly dependent on the damage functions
assumed, including N, W, and DS alternatives. The overall summary of the findings shows that if climate change is not controlled by
countries and is not bound by international treaties such as the COP26 agreement, it is very likely that the most severe climate scenario
will occur (SSP5-8.5). Consequently, economic growth will be severely affected by damage to potential output, productivity growth,
and capital accumulation, especially in vulnerable regions such as Asia countries. Abiding by COP26 would go a long way in limiting
economic impacts; however, the economic problems caused by Covid-19 have made it challenging to adhere to it.
Although some limitations are noteworthy, the applied approach, which is classified as the growth economy approach, is capable of
17
examining different classes scenarios far beyond the scope of the current study, like changes in labor growth, capital saving and
depreciation rates, and productivity driving factors.
There are some limitations in the current study that deserve to be addressed in future studies. First, like Dietz and Stern (2015) and
Tsigaris and Wood (2019), we assume a constant saving rate for capital inputs while it can change since the return to capital is expected
to change due to climate change effects. Second, the proxy variables for capital inputs saving remain controversial, as mentioned in the
literature, needing for alternative proxies. There are little empirical works examining the environmental and social capital contri
bution to production. In addition, the merit of the approach applied depends on the damage functions developed globally in the
literature, and any changes in the damage functions should be addressed accordingly. Also, developing capital-embodied technology is
another extension of our current model. Finally, the data availability for all Asian countries is limited to examining our goals in a
broader group of countries.
Statement
We tried to address the most challenging debate (Climate Change) in Asia, which is one of the most vulnerable regions in the world.
From the subject point of view, this paper follows the most recent debates developed in the climate change context. As far as the
technical issues are considered, we have some novelties in the model development as well as the production function inputs. Addi
tionally, the applied approach paves the way for future studies to focus more on the climate effects. After revising the manuscript based
on the Reviewers’ comments, the manuscript was improved significantly.
Declaration of competing interest
The authors declare that they have no known competing financial interests or personal relationships that could have appeared to
influence the work reported in this paper. This study has been funded at Shiraz University, Grant Number of 99GRC1M84069.
Data availability
Data will be made available on request.
Appendix A
Table A.1
Detailed explanation of models
No. name description
1 T0_No Damage with Basic productivity regardless of climate change

2 T0_N Damage with Basic productivity and N-Damage function
3 T0_W Damage with Basic productivity and W-Damage function
4 T0_DS Damage with Basic productivity and DS-Damage function
5 T0_W_δ Damage with Basic productivity, W-Damage function, and the impact on the depreciation rate
6 T0_W_TFP Damage with Basic productivity, W-Damage function, and the impact on the productivity growth rate
7 T1_No Damage with T1 productivity regardless of climate change
8 T1_W Damage with T1 productivity and W-Damage function
9 T1_W_δ Damage with T1 productivity, W-Damage function, and the impact on the depreciation rate
10 T1_W_TFP Damage with T1 productivity, W-Damage function, and the impact on the productivity growth rate
11 T2_No Damage with T2 productivity regardless of climate change
12 T2_W Damage with T2 productivity and W-Damage function
13 T2_W_δ Damage with T2 productivity, W-Damage function, and he impact on the depreciation rate
14 T2_W_TFP Damage with T2 productivity, W-Damage function, and the impact on the productivity growth rate
*T1: total factor productivity as the function of financial development (Financial Development Index), and openness to international trade
(Trade).
**T2: total factor productivity as a function of financial development (Financial Development Index), openness to international trade (Trade), and
foreign aid inflows (Net Official Development Assistance).
*** The damage function developed by Nordhaus (2013), labeled as N-Damage.
The damage function developed by Weitzman (2012), labeled as W-Damage.
The damage function developed by Dietz and Stern (2015), labeled as DS-Damage.
18
Fig. A.1. Global anomaly temperature under SSP Scenario of CMIP6 (IPCC, 2021)
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The impact of climate change on economic growth: Evidence from a panel of

Article in Environmental Development · July 2023

Effat Ghorbanian Mohammadhassan Tarazkar

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Contents lists available at ScienceDirect

The impact of climate change on economic growth: Evidence from

technology, development of capital-embodied technologies, and lower dependence on environ­

1.1. Asian countries and climate change

1.2. Economic effects of climate change in Asia

1.3. Map of study areas

3. Methods and data

3.1. Model specifications

3.1.1. Cobb-Douglas production technology

Yit = Kitα (Ait Lit )1− α εit (1)

where D is the damage function and is defined as:

equation considering climate change effects is written as Eq. (18):

3.2. Variables and data

4. Results and discussion

4.1. Estimation results

R2 0.99 0.99 0.99 0.99 0.99 0.99

Note: t-values of the coefficient are presented in parentheses.

4.1.1. Estimation of CES production function

4.1.2. Estimation of Cobb-Douglas production function

φ3 _ _ _ _ _ _ _ _ _ _ 0.074 0.073 0.056 0.029687

εD - (SSP1- _ − 0.13 − 0.15 − 0.18 _ _ _ − 0.15 _ _ _ − 0.15 _ _

Environmental Development 47 (2023) 100898

Output per worker T0_No Damage

4.2. 4-2-Projected output level under climate change scenarios

4.3. Projected capital-worker ratio pathway under climate change scenarios

Declaration of competing interest

Data will be made available on request.

No. name description

1 T0_No Damage with Basic productivity regardless of climate change

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technology, development of capital-embodied technologies, and lower dependence on environ