APL (Ajiken Power Lunch)

APL (Ajiken Power Lunch) is a lunchtime workshop open to public, including IDE staffs, visiting research fellows, IDEAS students, outside researchers and graduate students. This workshop provides a platform for presentation of any work in progress where we can discuss in either English or Japanese.

Those who would attend a seminar are asked to announce yourself to receptionists on your arrival at the IDE and to obtain APL Organizers' signature on your admission card after the seminar.

May 30, 2018. (Wednesday) 12:30-14:00

Institute of Developing Economies, Japan External Trade Organization C24 Meeting Room 　

How Climate Change Affects the Cost of Debt for the World’s Most Vulnerable Developing Countries

Over the last century, the frequency of natural disasters has increased significantly. The causes of these hazards are complex, but there is widespread consensus in the scientific community that anthropogenic climate change has led to an increase of temperatures of oceans and the atmosphere, which in turn has contributed to the frequency and severity of extreme weather events. While a growing literature has investigated the impact of climate change on economic growth and estimated the economic losses associated with extreme weather events, there is a dearth of research that investigates the effect of climate risk on the cost of sovereign debt. We use indices from the Notre Dame Global Adaptation Initiative to investigate the impact of climate risk on bond yields. Our methodology invokes panel ordinary least squares with robust standard errors and principal component analysis. The latter serves to address the inherent multicollinearity between a set of climate risk measures. We find that countries with higher exposure to climate risk, such as the member countries of the V20 climate vulnerable forum, exhibit higher cost of debt. This effect is significant after accounting for a set of macroeconomic controls. Specifically, we estimate the incremental debt cost due to higher climate risk, for the V20 countries, to have exceeded USD 62 billion over the last ten years. We also find that a measure of social readiness, which includes education and infrastructure, has a negative and significant effect on bond yields, implying that social and physical investments can mitigate climate risk related debt costs and help to stabilise the cost of debt for the V20 countries.

Ulrich Volz (Head of Department of Economics, School of Oriental and African Studies [SOAS], University of London)

Tatsufumi Yamagata

English