Economic Impacts of Climate Change in Thailand: Theory and Evidence
Keywords:
Business cycle, Climate change, Climate shocks, DSGE models, Small open economy, Structural VAR modelsAbstract
Climate change, characterized by not only rising average temperatures but also intensifying extreme weather events such as floods and droughts, poses substantial risks to the production of goods and services. This study investigates the implications of these extreme weather conditions on Thailand’s macroeconomy, utilizing the Standardized Precipitation-Evapotranspiration Index (SPEI) to measure drought conditions. Through the analysis of both the Dynamic Stochastic General Equilibrium (DSGE) and Structural Vector Autoregression (SVAR) models, extreme weather conditions have a significant negative impact on short-run macroeconomic performance, causing disruptions in production and domestic demand while simultaneously driving up agricultural prices. Notably, the counterfactual analyses reveal that policy measures designed to adapt to climate change and enhance labor mobility across sectors markedly alleviate the detrimental economic consequences of climatic extremes.Consequently, this underscores the pivotal role of adaptive climate and labor migration policies in mitigating the adverse impacts of climate change on Thailand’s macroeconomy.
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