Today, we are pleased to present by Nelson MarkAlfred C. DeCrane Jr. Professor of Economics (University of Notre Dame).
A central problem addressed by the economics of climate change is estimating the economic costs of climate change. Because climate is a slowly evolving phenomenon and less suitable for econometric analysis, empirical economists use weather (such as temperature and precipitation) to represent climate.Empirical study using international temperature and GDP per capita data panel regression The effect of a country’s GDP growth on the country’s temperature. A rough consensus is that heat hurts hotter and less wealthy countries economically, but has no (statistically significant) effect on cooler and wealthier ones.
No impact on rich countries can be seen as a problem. Industrialized countries are major contributors to current GHG stocks, but if they don’t bear the economic cost, what incentive do they have to invest in climate change mitigation? Nicholas Stern Calls on rich countries to take ethical considerations. First, rich countries have largely created this problem through mechanized production since the Industrial Revolution, and second, poor countries are just beginning to rise out of poverty through rapid growth and should not be forced to slow down.
These panel regressions discussed above limit the GDP growth response coefficients to higher temperatures to be equal across countries, although a limited analysis of differences between countries (ie, rich versus poor) can be done by using dummy variables.
Conversely, if a Estimated GDP Response One would find many different responses to (positive) temperature shocks in each country. The graph shows the impulse response of a country’s log GDP per capita to a 1°C increase in temperature from 0 to 7 years after the shock. Some poor and hot countries are hurt by the heat, while surprisingly others seem to benefit from it. Rich countries are more likely to be hurt. Six of the G-7 countries saw a decline in per capita GDP following the temperature shock.
To get a more complete picture of the differences in responses across countries, the top of the map shows the GDP response over the same period, and the bottom panel shows the next 7-year response to the temperature shock. Positive responses are green and negative responses are red. Darker shading indicates statistical significance at the 5% level. In the bottom panel, higher temperatures favor very cold countries (Canada, Greenland, Russian Federation). This makes sense, as alleviating extreme cold in these countries can extend growing and building seasons and increase production efficiency in general. Curiously, positive temperature shocks are good for China, India, Brazil and several African countries.
To describe these response patterns in a more systematic way, let’s perform a cross-sectional regression of the Horizon 7 country response coefficients on country characteristics: latitude, GDP per capita, long-term growth, and the relative importance of agriculture, industry, and manufacturing. No need to go into actual detail Numbers – I will only indicate the coefficient sign and whether it is statistically significant (with *)
After controlling for latitude, richer and faster-growing countries are hurt by higher temperatures. Countries with larger manufacturing scales will also be damaged by the temperature. These results are consistent with evidence that heat reduces labor productivity and labor supply in manufacturing.
Curiously, countries where agriculture plays a larger role in the economy are more likely to benefit from rising temperatures. This seems to go against the conventional wisdom that agricultural labor should be most directly exposed to heat and that crop yields should suffer from heat. However, this is consistent with the inverse relationship between response and income, as poorer countries have larger agricultural sectors.
The GDP of countries with a larger share of industry (manufacturing, mining, construction, electricity, water and gas) benefited, possibly because warmer weather extended the number of days of operation for construction and mining.
There appear to be large differences between countries in the way temperature affects GDP. Temperature shocks have already taken a heavy toll on rich countries. They should be incentivized to invest in emission reduction policies in their own interests.
This article is by Nelson Mark.
