Introduction:
Globally, climate change is now recognized not merely as an environmental challenge but also as a structural macro-financial risk. Through multiple economic and financial transmission channels, it constrains policy space and fundamentally reshapes the long-term growth trajectory of vulnerable economies—particularly Iran. In the domestic research literature, scholarly focus has predominantly centered on the sectoral impacts of climate change, while systematic linkages between climate-related risks and key macro-financial variables have been largely neglected. To address this conceptual gap, this study examines the asymmetric and regime-dependent effects of climate change on Iran’s economic growth. Departing from conventional linear approaches, the analysis explicitly accounts for potential shifts in both the direction and magnitude of these effects under varying macroeconomic conditions—such as sanctions regimes, oil price volatility, or fiscal stress—thereby providing a more nuanced and comprehensive basis for formulating resilient and sustainable economic policy.
Materials and Methods:
We employ a multi-threshold nonlinear autoregressive distributed lag approach (MT-NARDL). The dependent variable is the growth rate of real GDP per capita, and the main explanatory variable is the ND-GAIN index, used as a proxy for climate vulnerability and adaptive capacity. To identify threshold effects, ND-GAIN is decomposed into four regimes: large negative shocks (REG1), small negative shocks (REG2), small positive shocks (REG3), and large positive shocks (REG4). Annual data for Iran over 1995–2023 are used, along with macro-financial and institutional controls including the exchange rate, inflation, domestic credit, gross capital formation, stock-market trading activity, and government effectiveness. The existence of a long-run relationship is confirmed via the bounds testing procedure, and model stability is assessed using standard coefficient stability diagnostics.
Results:
The findings indicate that climate-related effects on Iran’s economic growth are decisively asymmetric and depend on shock magnitude. In the long run, a 1% increase in large negative shocks reduces GDP per capita growth by about 0.29% (statistically significant), whereas small negative shocks have no significant long-run effect. On the positive side, a 1% increase in small positive shocks raises growth by approximately 0.065%, while large positive shocks increase growth by about 0.42%. In the short run, a 1% rise in large and small negative shocks lowers growth by roughly 0.361% and 0.098%, respectively. By contrast, a 1% increase in large positive shocks raises growth by about 0.536%, and small positive shocks exert positive contemporaneous and lagged effects (around 0.098% in the current period and 0.078% with one lag). The error-correction term (CointEq(−1) = −0.7346) implies that nearly 73% of disequilibrium adjusts each period. Macro-financial controls behave as expected: the exchange rate and inflation are growth-reducing, while credit and capital formation are growth-enhancing; government effectiveness also has a positive and significant impact on growth.
Discussion:
Overall, the results suggest that the climate–growth relationship in Iran does not follow a linear pattern. Severe adverse climate shocks can persistently undermine growth, whereas improvements—especially under positive regimes—can strengthen growth prospects. Accordingly, climate policy should move beyond reactive measures by integrating climate-risk management into the macro-financial framework, prioritizing reductions in vulnerability to large negative shocks and reinforcing pathways that build climate resilience.