The Macroeconomics of Flood: A Case Study of Pakistan

Abstract

Climate change is a real threat explicitly for developing economies as large unexpected natural disasters generate destruction for economic and socio-economic factors. We use Autoregressive Distributive Lag (ARDL) cointegration model to figure out the dynamic response of output growth to flood shocks, using time series data for Pakistan between 1981 and 2014. The aim of the paper is to assess the long and short run dynamics of floods for economic growth. The results confirm a suitable long run relationship among GDP growth and its determinants: agriculture growth, non-agriculture growth, investment and affected areas by flood. We conclude that in case of Pakistan, we have a positive and significant effect of flood shocks on GDP growth and this impact is larger and more significant in the agriculture sector.

Keywords: natural disasters, GDP growth, ARDL, long run, short run, dynamics.