Open AccessImpact of Climate Change on Budget Balance: Implications for Fiscal Policy in the ECOWAS Region
Author(s) -
Binta Yahaya,
Louis Sevitenyi Nkwatoh,
Babagana Adamu Jajere
Publication year - 2021
Publication title -
international journal of economics and finance
Language(s) - English
Resource type - Journals
eISSN - 1916-9728
pISSN - 1916-971X
DOI - 10.5539/ijef.v13n8p25
Subject(s) - revenue , economics , debt , balance (ability) , foreign direct investment , inflation (cosmology) , panel data , fiscal policy , investment (military) , international economics , balance of trade , monetary economics , macroeconomics , economic policy , finance , politics , medicine , physics , econometrics , theoretical physics , political science , law , physical medicine and rehabilitation
The budget deficits of the Economic Community of West African States (ECOWAS) have been widening over the years. This study investigated the impact of climate change on budget balance and projected its implication for fiscal policy in ECOWAS countries. The two-step dynamic GMM method was applied for a balanced panel data of 14 countries from 2008 to 2018. The study found that rainfall is the only climate variable that increases budget deficits. Other macroeconomic variables: debt to GDP ratio and inflation were also responsible for the widening budget deficits. A major policy implication of this finding is that extreme and unpredictable rainfalls will distort the fiscal balance of ECOWAS countries by either reducing the revenue generation outlets or by raising expenditures. This will lead to more borrowing that will further widen the existing budget deficits through debt servicing, hence, making the respective governments to pay less attention on other sectors of the economy. Thus, ECOWAS countries need to expand their revenue generation sources either by creating an enabling environment for more businesses and investments to strive or by engaging in more foreign direct investment (FDI).