Long-Run Macroeconomic Effects Of Shifting Temperature Anomaly Distributions

Abstract

This paper uses panel data on 201 countries from 1960 to 2019 to quantify the long-run macroeconomic effects of climate change-induced shifts in temperature anomaly distributions. We find that rising average temperature anomalies from historical norms caused by global warming have negative, non-linear impacts on GDP growth. By additionally accounting for the full temperature anomaly distribution (volatility, skewness, and kurtosis) across a geospatial grid and across time, our approach is a methodological step towards quantifying the macroeconomic impacts of broader climate change. Projected damages are far greater than estimated in previous studies that have focussed on quantifying the macroeconomic impacts of average temperature levels or volatility/extremes only. We find that 2 to 2.6°C of warming by 2050 could reduce global output by 20 to 40% compared to a scenario where temperatures are held flat at current levels, while warming of 4-5°C by 2100 could lead to more severe damages, consistent with scientific research on mass extinction thresholds and tipping points. 

Keywords: Climate change, temperature anomaly, temperature volatility, GDP growth, damage function