Impacts of Agricultural Aid, Remittances, and Climate Change on Macroeconomic Volatility in Africa

Abstract

This study investigates the effect of remittances and agricultural aid inflows on GDP growth rate volatility in response to environmental shocks indicated by four climate variables in twenty-eight African countries using three years grouped data from 1996 to 2013 with the system generalized method of moments. Consequently, natural disasters and temperature variability have a significant effect on GDP volatility, while rainfall variability and the weighted anomaly standardized precipitation (WASP) index have no adverse consequence on stabilization of the economy. However, in general, remittances and agricultural aid are helpful to stabilize the economy and especially remittances inflows can play a crucial role as insurance when natural disasters occur.