Climate change, state capacity and uneven growth: A disaggregated analysis of India

This study examines how rising temperatures affect India’s long-term economic growth, both at aggregate and disaggregated levels across regions, sectors, and seasons. Existing research has predominantly relied on pooled estimation with panel data that inadequately address heterogeneity, temperature dynamics, and underlying transmission mechanisms, particularly at disaggregated levels. A cross-sectionally augmented auto-regressive distributed lag model (CS-ARDL) is estimated using panel data that capture state-specific weather-output relationships, long-term impacts, temperature persistence, intra-annual variability, unobserved heterogeneity, and cross-regional spillovers. The findings reveal that, on average, a 1 °C annual temperature variation reduces economic growth by 3.89%, nearly twice the previous estimate. Second, results suggest that annual temperature variation diminishes growth by damaging productivity through reduced ecosystem services, labour, and capital efficiency. Third, state capacity plays a moderating role in shaping regional vulnerability to temperature shocks. Fourth, impacts are heterogeneous, varying by season (greater in winter), region (higher in southern and hotter regions), and across sectors.