Impact of climate change on global economy: A comprehensive review

Climate change has emerged as an important global issue, primarily driven by human activities, affecting ecosystems, societies, and economies worldwide. This review employed a comprehensive narrative analysis that incorporates expertise from policy studies, environmental science, and economics. Targeted keywords are used to systematically search major academic databases. This article explores various aspects of climate change, economic consequences, and the evolving discourse on climate risk. It addresses the association between climate change and several economic variables, such as gross domestic product (GDP), foreign direct investment (FDI), and financial markets. The review highlights the complex relationship among physical risks, transition risks, and approaches to cope with climate change. It examines global climate policies such as the Kyoto Protocol and Paris Agreement. This study also investigates climate risk assessment models like Integrated Assessment Models (IAMs) and how they help understand the economic effect of climate change. Moreover, it explores ways to adapt to and reduce climate change, such as carbon taxes and subsidies. This review focuses on the critical importance of instruments like the Climate Action Tracker in evaluating national and global climate change responses, which serve as a framework for assessing policy effectiveness and progress toward emission targets. By integrating different viewpoints from economics, environmental science, and governance, this review underscores the value of coordinated global action to address the challenges posed by climate change.