Water Stress, Climate Variability, and Economic Performance: Evidence from Asian Economies

Abstract

In this research, the multifaceted relationship between water stress, climate variability, and economic performance in Asian economies has been analyzed, revealing that water constraints have the power to significantly increase the macroeconomic impacts of climate change. The study, which is based on panel data of 45 countries from 1971 to 2024 and utilizing the Pooled Mean Group–Autoregressive Distributed Lag (PMG-ARDL) model, examines the interaction between temperature, rainfall variability, water resources, and economic growth both in the short run and in the long run. The outcomes of the study show that the combination of limited water supply and erratic rain patterns results in a noticeable decline in output growth, which is most pronounced in agriculture-dependent and lower-middle-income areas. The researchers have observed a direct link between a one-degree Celsius rise in average temperature and the GDP loss amounting to several billions of dollars, with the intensity of the damage depending on the respective climate risk and water-stressed regions. Moreover, the impact of water scarcity on climate variability cast a shadow by the weakening of crop yields, disruption of industrial output, and limiting of adaptive capacity thus the results emphasize the fact that water stress is a key channel through which climate change affects the economy in Asia. The authors say that in the absence of regional cooperation in adapting to the changing conditions and sustainable water management, the problems of water scarcity and climate change together will continue to make the economy and different regions more vulnerable and polarize the differences in growth between them.