Climate change, economic growth and household vulnerability in Uganda

Abstract

Uganda's macroeconomic modelling frameworks currently overlook the impact of climate change, despite mounting evidence of extreme climate variability in the country. Prior attempts to assess climate change effects have been limited to case studies of specific agricultural commodities, regions, or sectors, offering fragmented insights. Despite the expectation that economic growth would lead to poverty reduction, Uganda has experienced distressing reversals in poverty rates during periods of significant economic expansion. To address this issue, our study utilized data from; the Uganda National Panel Survey (UNPS), the National Aeronautics and Space Administration (NASA), and World Bank Indicator (WDI). Employing the Vector Error Correction Model and Johansen cointegration econometric analysis techniques, we estimated the long-run and short-run direct and indirect effects of climate change on Uganda's economic growth. Additionally, we explored the impact of climate variability on household vulnerability to poverty. The study reveals that climate change directly affects economic growth in the long run, with a 10C increase in temperature leading to a 2.5 percentage point reduction in economic growth. Moreover, the indirect-sectoral pass through effect demonstrates that climate change influences growth through both the agriculture and service sectors. Crucially, climate variability significantly impacts the likelihood of households being vulnerable to poverty in Uganda. As a result, we propose that Uganda incorporates climate change effects into its macroeconomic-growth accounting frameworks, integrates climate considerations into national planning, budgeting, and reporting at all levels, and implements measures to enhance household resilience against climate-related shocks. Key Words: Climate Change, Economic growth, Vector Error Correction model, vulnerability.