Economic growth impact of climate change: New empirical evidence from Vietnam

Type of the article: Research ArticleAbstractThis study aims to investigate the economic effect of climate change by providing rigorous evidence of its impact in the most climate-susceptible economies, with Vietnam as a representative case. The study scrutinizes the economic growth impact of climate change while examining the intervening roles of renewable energy usage, trade openness, and the interaction between renewable energy usage and financial development in both the short and long run. Applying the ARDL framework using Vietnam’s data from 1992 to 2022, the results provide evidence that climate change exerts a direct influence on growth across both time horizons. Specifically, a one-degree Celsius increase in temperature is associated with an approximate 0.18% increase in GDP in the long run, and 0.018% in the short run. The findings suggest that greater reliance on renewable energy contributes positively to economic performance, as a 1% increase in the renewable energy share within the energy mix corresponds to a 1.1% expansion in GDP. In contrast, increased trade openness is found to adversely affect long-run growth, with a 1% rise in openness linked to a GDP contraction of about 0.004%. Furthermore, the joint effect of renewable energy utilization and financial development does not display a statistically significant influence on long-run growth. Conversely, short-run dynamics indicate that changes in this interaction support growth, while adjustments in renewable energy consumption and trade openness tend to dampen growth performance. The study recommends policies that enhance climate resilience, promote renewable energy, and support trade strategies to strengthen production value chains for sustainable growth.