The UNU WIDER Working Paper by Adu-Ababio, Mwale, and Oliveira examines the impact of climate shocks on Zambian firms, highlighting significant reductions in sales, tax revenue, and productivity in sectors like manufacturing and construction. The research demonstrates that extreme weather events lead to layoffs and wage reductions, emphasizing the interconnectedness of climate challenges and economic resilience in low-income nations.
The UNU WIDER Working Paper (2024/71) by Kwabena Adu-Ababio, Evaristo Mwale, and Rodrigo Oliveira explores the interrelationship between climate shocks and economic performance in Zambia’s formal sector. Utilizing firm-level data, the study reveals that significant climate events, particularly excessive rainfall and extreme temperatures, adversely affect firms by decreasing sales and input purchases. This decline is especially pronounced within critical sectors such as manufacturing, retail, accommodation, and construction, leading to reduced tax collection and consequential impacts on government revenue.
Notably, the authors outline that firms often counteract these adverse impacts by scaling down employment levels and wage distributions, highlighting a direct correlation between climate shocks and productivity declines. The findings underscore a pressing need for policymakers to recognize the intricate dynamics between climate-induced challenges and economic resilience, particularly within low-income countries where taxation constitutes a substantial portion of public finances. This comprehensive approach ensures that both productivity and revenue implications are adequately considered in economic planning and policy formulation.
In contemporary discussions surrounding climate change, low-income countries confront dual challenges: the effects of climate shocks and the limitations of domestic revenue mobilization. Zambia serves as a case study to examine these challenges in detail. The findings from the UNU WIDER Working Paper illuminate how extreme weather events, like floods and droughts, are not standalone issues but rather factors that critically undermine firm performance and thereby tax revenues. This paper contributes to a relatively underexplored area of study, emphasizing the need for integrated policy responses to tackle these interconnected challenges in a low-income context.
In conclusion, the UNU WIDER Working Paper elaborates on the detrimental impacts of climate shocks on both firm productivity and government revenue in Zambia. By elucidating the negative feedback loop involving extreme weather events, sales reductions, and diminished tax collection, the study advocates for more holistic economic strategies. Policymakers must integrate considerations of climate resilience into economic and fiscal frameworks to enhance the sustainability and effectiveness of public revenue systems in developing countries.
Original Source: reliefweb.int
