The Effect of Climate Change on Economic Growth (Application of DCGE Model for Iran)

Climate change is one of the most important issues affecting different economic sectors. Although this phenomenon has had a larger effect on the agricultural sector due to the heavy dependence of agriculture on weather conditions as compared to the other economic sectors, other economic sectors such as the industry, mining and service sectors are also influenced by weather changes due to their intra-sector dependence on the agricultural sector. Accordingly, the effect of climate change on the economic growth of Iran was examined in this research using the DynamicComputable General Equilibrium (DCGE) model. Our investigation revealed that the decrease in the precipitation in the twenty-year horizon (2011 to 2030) will reduce consumption in all sectors. Moreover, while production in the agriculture and mining sectors declines, it escalates with a descending trend in the industry and service sectors. Based on our findings, as a result of the decreased investment in the other sectors, investment in the agriculture, industry, and mining sectors decreases, whereas it rises in the service sector. Given the research results and the challenge of climate change facing this country, the Iranian government must devise a master practical plan to adapt to and confront this phenomenon and reduce its adverse effects.