Climate Change and Productivity Dynamics: Evidence from Emerging Market Economies

This study explores how climate change (CC) influences total factor productivity (TFP) and labor productivity (LP) in 14 emerging market economies during 1990–2019. To analyze this relationship, we employ panel regression, a Bayesian time-varying parameter (B-TVP) model, and XGBoost. The empirical results indicate that rising temperatures adversely affect both TFP and LP, although the magnitude of these effects varies over time. The results further suggest that fiscal policy plays a key role in mitigating the adverse effects of CC on productivity. The machine-learning analysis highlights the relative importance of climate and macroeconomic factors in explaining productivity dynamics. Overall, the results underscore the need to integrate climate adaptation into macroeconomic and fiscal policies to enhance productivity and promote sustainable economic growth in EMEs.