Long-Term Climate Change, Policy Uncertainty, and Aggregate Economic Conditions: US State-Level Evidence

Abstract

Based on the most extensive large state-level panel data uniquely built, the study quantifies the interrelations between climate change, economic conditions, and policy uncertainty in the U.S. with 147,789 state-month-week observations. Tracking weekly state-level economic conditions back to 1987 and their decomposition (mobility, labor, real activity, expectations, financials, and households), the study documents a strong adverse association between temperature change and economic conditions at the state-level analyses. Testing for state-level economic policy uncertainty with US policy categories, the study empirically implies that temperature anomaly (global warming) is the long-term root of economic conditions, with a positive relationship established between temperature change and policy uncertainty. Contributing directly to the literature on the economics of climate change, the study finds that climate change (climate-related risks and conditions) has been the long-lasting determinant of adverse economic conditions and policy uncertainties due to people’s decision-making. Global warming, or climate change as the public bad, needs more critical considerations on different strands of future literature with the interconnectedness between climate, economy, and policy uncertainty empirically exhibited with US multidecade state-level evidence. 

Keywords: Temperature Anomaly, Climate Change, Policy Uncertainty and Economic Conditions, Global Warming.

JEL Classification: A1, A10, E00, O41, Q51, Q54, Q58.