Global Temperature, R&D Expenditure, and Growth

41 Pages Posted: 25 Nov 2017

See all articles by Michael Donadelli

Michael Donadelli

Goethe University Frankfurt - Research Center SAFE

Patrick Grüning

Bank of Lithuania - Center of Excellence for Finance and Economic Research (CEFER); Vilnius University - Faculty of Economics and Business Administration; Research Center SAFE

Marcus Jüppner

Goethe University Frankfurt - Research Center SAFE; Deutsche Bundesbank

Renatas Kizys

Portsmouth Business School

Date Written: November 21, 2017

Abstract

We shed new light on the macroeconomic effects of rising temperatures. In the data, a shock to global temperature dampens expenditures in research and development (R&D). We rationalize this empirical evidence within a stochastic endogenous growth model, featuring temperature risk and growth sustained through innovations. In line with the novel evidence in the data, temperature shocks undermine economic growth via a drop in R&D. Moreover, in our endogenous growth setting temperature risk generates non-negligible welfare costs (i.e., 11% of lifetime utility). An active government, which is committed to a zero fiscal deficit policy, can offset the welfare costs of global temperature risk by subsidizing the aggregate capital investment with one-fifth of total public spending.

Keywords: Global Temperature, R&D, Welfare Costs

JEL Classification: E30, G12, Q00

Suggested Citation

Donadelli, Michael and Grüning, Patrick and Jüppner, Marcus and Kizys, Renatas, Global Temperature, R&D Expenditure, and Growth (November 21, 2017). SAFE Working Paper No. 188. Available at SSRN: https://ssrn.com/abstract=3075229 or http://dx.doi.org/10.2139/ssrn.3075229

Michael Donadelli (Contact Author)

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Patrick Grüning

Bank of Lithuania - Center of Excellence for Finance and Economic Research (CEFER) ( email )

Totoriu g. 4
Vilnius, LT-01121
Lithuania
+370 5 2680 069 (Phone)

HOME PAGE: http://www.lb.lt/en/dr-patrick-gruning

Vilnius University - Faculty of Economics and Business Administration ( email )

Sauletekio al. 9 (II building)
Vilnius, LT-10222
Lithuania

HOME PAGE: http://www.evaf.vu.lt/en/

Research Center SAFE ( email )

Goethe University Frankfurt
Theodor-W.-Adorno Platz 3
Frankfurt am Main, D-60629
Germany

HOME PAGE: http://safe-frankfurt.de/research/researchers/researchers-details/showauthor/92-gruening.html

Marcus Jüppner

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Strasse 14
60431 Frankfurt am Main
Germany

Renatas Kizys

Portsmouth Business School ( email )

Portsmouth, PO1 3DE
United Kingdom

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