Working Paper: NBER ID: w26167
Authors: Matthew E. Kahn; Kamiar Mohaddes; Ryan NC Ng; M Hashem Pesaran; Mehdi Raissi; Juichung Yang
Abstract: We study the long-term impact of climate change on economic activity across countries, using a stochastic growth model where labour productivity is affected by country-specific climate variables—defined as deviations of temperature and precipitation from their historical norms. Using a panel data set of 174 countries over the years 1960 to 2014, we find that per-capita real output growth is adversely affected by persistent changes in the temperature above or below its historical norm, but we do not obtain any statistically significant effects for changes in precipitation. Our counterfactual analysis suggests that a persistent increase in average global temperature by 0.04°C per year, in the absence of mitigation policies, reduces world real GDP per capita by 7.22 percent by 2100. On the other hand, abiding by the Paris Agreement, thereby limiting the temperature increase to 0.01°C per annum, reduces the loss substantially to 1.07 percent. These effects vary significantly across countries. We also provide supplementary evidence using data on a sample of 48 U.S. states between 1963 and 2016, and show that climate change has a long-lasting adverse impact on real output in various states and economic sectors, and on labor productivity and employment.
Keywords: Climate change; Macroeconomic effects; Economic growth; Panel data analysis
JEL Codes: E27; Q54; R11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increase in average global temperature by 0.04°C per year (Q54) | World real GDP per capita (F62) |
| Temperature increase limited to 0.01°C per annum (Q54) | Loss reduction (G52) |
| Temperature deviations (C29) | Labor productivity (O49) |
| Temperature deviations (C29) | Real output growth (O40) |
| Persistent increase in temperature (Q54) | GDP growth (O49) |
| Decrease in temperature (E31) | GDP growth (O49) |
| Annual increase of 0.01°C (Q54) | Average per capita real GSP growth (O49) |