The Effects of Climate Change on Public Investment Efficiency in Resource-rich Countries : Evidence from Stochastic Frontier Analysis

Date : Mercredi | 2022-10-27 à 12h30
Lieu : Salle des thèses

Developing countries suffer disproportionately from the negative impact of climate change and environmental degradation on economic development in terms of financial cost and loss of potential revenue. In this paper, we examine the effects of climate change on public investment efficiency in 34 developing countries with a particular focus on resource-rich countries over the period 2000 to 2013. Using the stochastic frontier analysis (SFA) to obtain the efficiency scores, we find that, on average, developing countries could increase the capital stock by 29% without changing their public investment expenditures. In particular, those in resource-rich countries could increase it by 26% without changing their expenditure. Then, in the second step, we use the fractional regression model (FRM) to capture the effect of climate change on the investment efficiency scores obtained in the first step. Our results show that climate change negatively affects the public investment efficiency. Nevertheless, when the climate change index is disaggregated to run the regressions, we find that only rainfall has a negative effect while a 1°C increase of temperature leads to an improvement of public investment efficiency of 16.32% as percent of GDP in resource-rich countries. These results are also statistically and economically robust to various controls and specifications. The main findings of this paper suggest that policies to combat climate change in general and heavy rainfall shocks in particular should include strong provisions for financing more resilient public investment adapting to climatic conditions and updating public infrastructures aimed at mitigating the negative environmental impact for developing countries, especially those rich in natural resources.