Panel Analysis of the Relationship Between Weather Variability and Sectoral Output in Kenya

Abstract

Climate change and economic growth are closely connected. Climate change has the potential to reduce economic growth in developing countries due to their limited ability to respond to the negative impacts of a changing climate. A better understanding of weather variability can enhance climate change policies, which would help to support economic growth in these countries. As such, this research sought to examine if there is a long-run relationship between sectoral output and weather variables (temperature and rainfall) and to analyze the effect of weather variability on sectoral output using a panel of 13 sectors in Kenya.A Pedroni cointegration test was carried out to find out if there exists a long-run relationship among the variables and thereafter, a fully modified ordinary least squares regression was conducted to establish the effect of weather variability on sectoral output. The results indicate that there is a long-run relationship between temperature and sectoral output. Moreover, temperature has a larger effect on sectoral output compared to rainfall. With the evidence gathered from this research, it can be concluded that weather variability has an economic effect on sectoral output in Kenya. Given this, the Kenyan government needs to take a keen interest in understanding the effect of weather variability on the economy and in the broader picture, take steps to mitigate climate change.