Climate Change: North & South EU Economies. An application of dynamic asymmetric panel data models

Abstract This paper investigates the effect of climate change on economic growth, using nonlinear dynamic panel methods, for 15 countries of European Union (EU), by the period 1981-2019. Specifically, it is examined the impact of temperature, precipitation and CO2 emissions on economic growth. So, ARDL (Autoregressive Distributed Lags) methods were employed, overcoming cross-dependency and also considering linearity and nonlinearity. In results is showed that economic growth has positive nonlinear relationship with long-run temperature, but in short-run they have a symmetric negative association. Moreover, precipitation has long-run negative and a short-run positive relationship with economic growth. However, when CO2 emissions are added, then precipitation has a positive effect on economic growth, but all others except from temperature increase, become insignificant. Finally, actions should be taken for more stable climate conditions and consistent environmental policies by EU countries.