Exploring the Nexus between Environmental Risk and Macroeconomic Stability: Panel Data Evidence from South Asian Regions

Abstract

South Asia is becoming a new region of economic instability due to environmental threats like heavy rainfall, temperature changes and declining labor productivity. This study aims to understand how climate related factors, production inputs and remittance inflows influence economic growth in six South Asian countries (Bhutan, Bangladesh, Sri Lanka, India, Nepal and Pakistan) for the period of 1990-2023 on the basis of World Bank data. The results indicate that gross fixed capital formation (β₁ = 0.676), working-age population (β₂ = 0.157) and remittances (β₅ = 0.131) are significant contributors to GDP growth, while temperature has a positive small effect (β₄ = 0.009) and heavy precipitation has a negative effect (β₃ = -0.294). The outcomes reveal the importance of government support to climate-smart farming, increase in irrigation and insurance, access to rural healthcare and vocational training, and remittance money flow to green infrastructure. Furthermore, regional cooperation via SAARC is crucial to build up the strength of climate risk management and early warning systems.