The Role of SST in Explaining the Economic Growth of Indian Ocean Countries

Abstract

Although the concern for the socio-economic effect of climate change has recently increased, its effect on sectoral GDP growth has been rarely researched especially regarding the transcontinental, mid-range area that consists mostly of developing countries like the Indian Ocean countries. Since this area shares an overall similar climate condition represented by the highest temperature as well as economic condition where most of them have experienced lagged economic growth amidst the fastest population growth, such effect will become more critical as their economies consist more heavily of climate-vulnerable sectors. Thus, we analyzed it by two level, e.g., aggregate and sectoral GDP levels. Utilizing empirical orthogonal functions, we found that the anomalies of GDP significantly decrease when local temperature, which shows high positive correlations with the Indian Ocean Sea Surface Temperature (IOSST) index, increases anomalously. In addition, this trend has been getting stronger recently as local and sea surface temperatures have overall risen. Most importantly, the highest sensitivity to climate change was shown in the service sector, as hypothesized in light of previous studies on the low-skilled and non-tradable service areas with higher adaptation deficit to climate change. We call this tested hypothesis“climate-vulnerable service expansion.”