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

60 Pages Posted: 8 Nov 2019

See all articles by Matt Kahn

Matt Kahn

Johns Hopkins University - Carey Business School

Kamiar Mohaddes

University of Cambridge - Judge Business School; University of Cambridge - King's College, Cambridge

Ryan N. C. Ng

Faculty of Economics and Girton College, University of Cambridge; affiliation not provided to SSRN

M. Hashem Pesaran

University of Southern California - Department of Economics

Mehdi Raissi

International Monetary Fund (IMF) - Fiscal Affairs Department

Jui-Chung Yang

Department of Economics, National Tsing Hua University

Date Written: October 2019

Abstract

We study the long-term impact of climate change on economic activity across countries, using a stochastic growth model where labor 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 more than 7 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 about 1 percent. These effects vary significantly across countries depending on the pace of temperature increases and variability of climate conditions. 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: Greenhouse gas emissions, Economic growth, Real sector, Economic cooperation, Economic indicators, Climate change, adaptation, counterfactual analysis., WP, historical norm, climate variable, labour productivity, move average, long-run

JEL Classification: C33, O40, O44, O51, Q51, Q54, E01, O4, E2, L31

Suggested Citation

Kahn, Matt and Mohaddes, Kamiar and C. Ng, Ryan N. 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 (October 2019). IMF Working Paper No. 19/215, Available at SSRN: https://ssrn.com/abstract=3482299

Matt Kahn (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

Kamiar Mohaddes

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
+44 (0)1223 766933 (Phone)

HOME PAGE: http://https://www.mohaddes.org/

University of Cambridge - King's College, Cambridge ( email )

King's Parade
Cambridge, CB2 1ST
United Kingdom
+44 (0)1223 766933 (Phone)

HOME PAGE: http://https://www.mohaddes.org/

Ryan N. C. Ng

affiliation not provided to SSRN

No Address Available

Faculty of Economics and Girton College, University of Cambridge ( email )

Trinity Ln
Cambridge, CB2 1TN
United Kingdom

M. Hashem Pesaran

University of Southern California - Department of Economics ( email )

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

Mehdi Raissi

International Monetary Fund (IMF) - Fiscal Affairs 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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