The Role of Public Governance in Mitigating Climate Economic Losses: Empirical Evidence for EU OECD Member States and Candidate Countries

Abstract

Addressing climate change has become a core priority for public authorities across all levels of governance and a primary criterion for economic decision-making. Unlike traditional policies, which usually last for a few years, public governance sets up long-term strategic directions that require states to make a lasting commitment to reach their goals over decades. The present study examines how public governance quality influences the financial severity of climate-related shocks. Using panel data for 24 European Union countries, over the period 2009–2024, we test whether stronger institutions and adaptive capacity are associated with lower climate-induced economic losses. The analysis employs a fixed-effects panel regression with robust standard errors, guided by a Hausman test that indicates significant country-specific effects. We find that higher public sector integrity (measured by a higher Corruption Perceptions Index score) is significantly associated with reduced climate-related economic losses. In contrast, an index of national climate adaptive capacity exhibits the expected negative coefficient, but is statistically insignificant, possibly due to sample homogeneity and short-run data limitations. Control variables suggest that more developed economies suffer greater absolute losses, while environmental taxation levels show no significant short-term effect on loss mitigation. Our findings highlight the importance of good governance and institutional quality as crucial components of climate risk management strategies.