Effects of the global climate crisis on inflation and growth: The Turkiye example

The primary aim of this thesis is to analyze the impact of drought—an important manifestation of climate change—on the Turkish economy. In particular, the study investigates the short- and long-term effects of drought on economic growth (GDP) and inflation. The analysis is based on annual data covering the period from 1987 to 2023, with drought measured using the Standardized Precipitation Evapotranspiration Index (SPEI). The econometric methodology employed is the Autoregressive Distributed Lag (ARDL) model, which enables the examination of both short-term dynamic relationships and long-term cointegration among variables. The results indicate that inflation has a statistically significant and negative effect on economic growth in the long run. This finding highlights the critical importance of price stability for sustainable growth. While the drought variable does not have a statistically significant effect on growth in the long term, the inflation model reveals that drought has a significant and negative short-term impact on the Consumer Price Index (CPI). Furthermore, the results of the error correction models demonstrate that short-term imbalances tend to return to long-term equilibrium over time. In conclusion, the study reveals that climatic factors can produce short-term effects particularly on the general price level, and that the relationship between inflation and growth exhibits structural characteristics. These findings underscore the necessity of incorporating climate variables into macroeconomic decision-making processes. The study emphasizes that the goals of sustainable growth and price stability should be addressed in harmony with climate policies.