Long-Term Macroeconomic Effects of Climate Change: A Cross-Country Analysis

57 Pages Posted: 29 Jul 2019

See all articles by Matthew E. Kahn

Matthew E. Kahn

University of Southern California; National Bureau of Economic Research (NBER)

Kamiar Mohaddes

University of Cambridge - Faculty of Economics and Politics; University of Cambridge - Girton College

Ryan N. C. Ng

affiliation not provided to SSRN

M. Hashem Pesaran

University of Southern California - Department of Economics; University of Cambridge - Trinity College (Cambridge)

Mehdi Raissi

International Monetary Fund (IMF) - Asia and Pacific Department

Jui-Chung Yang

Department of Economics, National Tsing Hua University

Multiple version iconThere are 4 versions of this paper

Date Written: July 1, 2019

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 labour productivity and employment.

Keywords: Climate Change, Economic Growth, Adaptation, Counterfactual Analysis

JEL Classification: C33, O40, O44, O51, Q51, Q54

Suggested Citation

Kahn, Matthew E. and Mohaddes, Kamiar and C. Ng, Ryan N. and Pesaran, M. Hashem and Raissi, Mehdi and Yang, Jui-Chung, Long-Term Macroeconomic Effects of Climate Change: A Cross-Country Analysis (July 1, 2019). USC-INET Research Paper No. 19-13. Available at SSRN: https://ssrn.com/abstract=3428610 or http://dx.doi.org/10.2139/ssrn.3428610

Matthew E. Kahn (Contact Author)

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Kamiar Mohaddes

University of Cambridge - Faculty of Economics and Politics ( email )

Austin Robinson Building
Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom
+44 (0) 1223338904 (Phone)

HOME PAGE: http://people.ds.cam.ac.uk/km418

University of Cambridge - Girton College ( email )

Cambridge, CB3 0JG
United Kingdom
+44 (0)1223 338999 (Phone)
+44 (0)1223 338896 (Fax)

HOME PAGE: http://people.ds.cam.ac.uk/km418

Ryan N. C. Ng

affiliation not provided to SSRN

No Address Available

M. Hashem Pesaran

University of Southern California - Department of Economics

3620 South Vermont Ave. Kaprielian (KAP) Hall 300
Los Angeles, CA 90089
United States

University of Cambridge - Trinity College (Cambridge) ( email )

United Kingdom

Mehdi Raissi

International Monetary Fund (IMF) - Asia and Pacific Department ( email )

700 19th Street NW
Washington, DC 20431
United States

HOME PAGE: http://https://sites.google.com/site/mehdiraissi/

Jui-Chung Yang

Department of Economics, National Tsing Hua University ( email )

101, Sec. 2, Kuang-Fu Road
HsinChu, 30013
Taiwan

HOME PAGE: http://https://sites.google.com/site/juichungyang/

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