Influence of Global Climate Change on Production: Correlation between the Production Index and Temperature Changes in Istanbul

Abstract

The purpose of this study is to unveil possible effects of global climate change on production index. To achieve this, cointegration, variance decomposition, and Granger causality analyses have been conducted with the data on monthly average temperatures in Istanbul and the production index averages for the period from 1986 through 2008. Moreover, an EGARCH model has been established so as to explore the influence of temperature changes over the volatility of production index. In accordance with the findings obtained, temperature shifts that are considered to be an outstanding manifestation of global climate change prove to have a statistically significant parallel effect on the production index, even at 1 % significance level. Additionally, it is seen that the production index is majorly affected by the changes in itself while only a limited fraction (at most 4,37 %) of the index changes is caused by the temperature changes. On the other hand, our correlation analysis based on the deseasonalized index and temperature series through 12-month moving averages provides material evidence that strengthens our previous conclusion of a significant positive relationship between the index and temperatures.