Impacts of Climate Shocks on Economic Resilience in Zambia’s Formal Sector
The UNU WIDER Working Paper 2024/71 analyzes how climate shocks affect firm performance and tax revenue in Zambia, revealing significant negative impacts on sales and employment in key sectors. The study emphasizes the need to consider the combined effects on productivity and government revenue in low-income contexts.
The UNU WIDER Working Paper 2024/71 examines the interaction between climate shocks and economic resilience, with a focus on Zambia’s formal sector. Authored by Kwabena Adu-Ababio, Evaristo Mwale, and Rodrigo Oliveira, the paper utilizes firm-level data to provide insights into how extreme weather conditions affect firm performance and tax revenue. The study finds that adverse climate events such as excessive rainfall and elevated temperatures significantly impede firms’ sales and input procurement, particularly impacting sectors including manufacturing, retail, accommodation, and construction. In response to these challenges, businesses tend to reduce employment and wages, indicating a downturn in productivity.
The authors underline the importance of analyzing the dual impacts of climate-related shocks on both the productivity of the formal sector and the government’s revenue generation capabilities. This is especially crucial in developing economies where value-added taxes (VAT) and similar levies comprise a more substantial portion of government budgets. The findings bring to light the intertwined nature of climate impact and fiscal health, suggesting that policymakers must account for these variables when planning economic resilience strategies.
Low-income nations like Zambia encounter substantial hurdles stemming from climate-induced disruptions coupled with the challenges of revenue collection. Previous studies have largely analyzed these issues in isolation. However, the necessity of understanding the cumulative effects of climate shocks on economic activities and tax revenues is paramount, particularly in resource-constrained environments where the formal sector plays a critical role in national income stability. The research presented in this paper offers a comprehensive examination of these interconnected issues, thereby filling a significant research gap in this field.
In conclusion, the insights provided in UNU WIDER Working Paper 2024/71 underscore the critical relationship between climate shocks, firm performance, and public revenue in Zambia. The adverse effects of excessive rainfall and high temperatures on key industries illustrate the urgent need for integrated strategies that address environmental and economic resilience. As such, policymakers must focus on mitigating climate impacts while enhancing revenue collection mechanisms to sustain economic stability.
Original Source: reliefweb.int
