ClimateRising temperature reduces economic activity
It is relatively straightforward to see how droughts and hot weather might hurt agriculture, but a new study shows that hot spells have much wider economic effects; the study finds that higher temperatures substantially reduce economic growth in poor countries: every 1-degree-Celsius increase in temperature in a poor country, over the course of a given year, reduces that country’s economic growth by about 1.3 percentage points
A paper published in the July 2012 issue of the American Economic Journal: Macroeconomics uses historical fluctuations in temperature within countries to identify the effects of such fluctuations on aggregate economic outcomes.
The authors find three primary results:
- First, higher temperatures substantially reduce economic growth in poor countries
- Second, higher temperatures may reduce growth rates, not just the level of output
- Third, higher temperatures have wide-ranging effects, reducing agricultural output, industrial output, and political stability
These findings inform debates over climate’s role in economic development and suggest the possibility of substantial negative impacts of higher temperatures on poor countries.
The authors looked at weather data over the last half-century, and found that every 1-degree-Celsius increase in temperature in a poor country, over the course of a given year, reduces that country’s economic growth by about 1.3 percentage points. This only applies to the world’s developing nations; the authors note that wealthier countries do not appear to be affected by the variations in temperature.
“Higher temperatures lead to substantially lower economic growth in poor countries,” Ben Olken, a professor of economics at MIT, who helped conduct the research, told MIT News.
While it is relatively straightforward to see how droughts and hot weather might hurt agriculture, the study indicates that hot spells have much wider economic effects. “What we’re suggesting is that it’s much broader than [agriculture],” Olken adds. “It affects investment, political stability and industrial output.”
Olivier Deschenes, an economist at the University of California at Santa Barbara, calls the study “an important finding because most of the prior research on the economic impacts of climate change have focused on a few sectors of the economy, predominantly the agricultural sector.” By contrast, he told MIT News, the broader finding of the current paper matters “because the growth rate is a key measure of the economic success of a nation and the standard of living of its population.”
Olken notes that the study does not try to account for all the possible problems that could be generated by long-term climate change, such as rising oceans, floods, or increased storms. Still, he adds, the paper does suggest some general points about the economic impact of a warming atmosphere. It is vital, he says, to “think about the heterogeneity of the impact between the poor and rich countries” when leaders and policymakers map out the problems the world may confront in the future.
“The impacts of these things are going to be worse for the countries that have the least ability to adapt to it,” he adds. “[We] want to think that through for the implications for future inequality. It’s a double whammy.”
— Read more in Melissa Dell, Benjamin F. Jones, and Benjamin A. Olken, “Temperature Shocks and Economic Growth: Evidence from the Last Half Century,” American Economic Journal: Macroeconomics 4, no. 3 (July 2012): 66–95 (DOI:10.1257/mac.4.3.66)
