Can Export Diversification Save sub-Saharan Africa from Extreme Weather? : An instrumental variable approach

Sammanfattning: Growth and development in the context of climate change and environmental challengesare issues of increasing importance in the economic debate. With higher levels of greenhousegases in the atmosphere, droughts and other forms of extreme weather are expected to increasein frequency. Some of the worst affected are people living in sub-Saharan African countries. However, there are literature showing that countries who diversify their production becomesmore resilient against negative shocks. This study aims to determine the relationship betweenprecipitation anomalies and GDP per capita growth under different levels of concentrationof the export portfolio, in order to understand what kind of diversification reduces economicrisks connected to precipitation. Precipitation anomalies, such as abnormally heavy rainfallor droughts, is seen as a good measurement for climate change, and can thus be treated aseconomic shocks. We are using data on export product shares and monthly precipitation todetermine whether the level of sectoral diversification in exports affects the influence precipitation anomalies have on GDP per capita growth. The effects are estimated using a two-stageleast squares model, only targeting countries in SSA for our estimations. The results show thatpositive weather anomalies correlate with lower levels of GDP per capita growth. But the samenegative trend cannot be seen for negative precipitation anomalies. The results also show thatthe level of diversification within exports does not have any significant effect on the influencethat precipitation anomalies have on GDP per capita growth.