Between the Devil and Deep Sea: Evaluating the Impact of Climate Shocks on Inflation and Economic Growth in Pakistan

Abstract

This study assesses the impact of climate shocks on inflation and GDP growth, based on1976-2022 data for Pakistan. For this purpose, ADF and P-P unit-root tests are applied to find integrating order. The ARDL bound approach confirmed the long-run relationship among inflation, economic growth, Climate shock along with the other variables. The findings suggest that climate shocks lead to inflation. Likewise, the relation of economic growth and climate shock show an inverse relation, signifying the importance of this debate in Pakistan.  If the country wants a stable economy with tamed inflation and high economic growth, the country needs to adopt and bring resilience to the climate related shocks. On the mitigation front the country cannot do much, however, some prudent steps can save the country from the repeated climate related shocks.