Title : Climate Change Impacts on the Domestic Economy in Korea: A Chronic Risk Perspective

Author : Jiwon Lee(Bank of Korea)

The economic implications of climate risk analysis is crucial not only for devising climate change adaptation strategies but also for motivating economic agents to cut back on greenhouse gas emissions. This study empirically analyzes the effects of chronic climate risks in South Korea on economic growth, and evaluated economic damages at the sectoral and regional levels. The research employs the damage functions that Kalkuhl & Wenz (2020) presented and that NGFS (Network for Greening the Financial Systems) used to generate climate scenarios. According to the result of the analysis, there is a negative marginal effect of -2.54% on the long-term growth of per capita Gross Regional Domestic Product (GRDP) in South Korea for every unit (1 meter, 1000mm) rise in annual total precipitation. At the sectoral level, industries such as construction (-9.84%), manufacture of other non-metallic mineral products and metal product (-6.78%), and financial and insurance activities (-3.62%), experience negative impacts on the long-term growth of real value-added. Although the increase in annual average temperature in South Korea does not show a significant effect on the long-term growth of per capita GRDP, some industries such as real estate activities (-1.73%) and wholesale and  retail trade (-1.85%) show significant negative effects in response to a 1°C temperature increase. Given the dearth of quantitative research on the macroeconomic and sectoral impacts of climate risk in South Korea, it is anticipated that the results of this study will be broadly applicable in future endeavors involving complex climate modeling, in-depth industry analyses, financial system stress tests, and policy references.