NCPA - National Center for Policy Analysis


January 8, 2009

In "Climate Change and Economic Growth: Evidence from the Last Half Century," researchers use year-by-year fluctuations in temperature and precipitation over the past half century to examine how these variables affect aggregate economic activity.  Using data for 136 countries over the period 1950 to 2003, authors Melissa Dell, Benjamin Jones and Benjamin Olken find:

  • Higher temperatures have large negative effects on growth -- but only in poor countries.
  • For such countries, the results suggest that a temperature increase of one degree Celsius for one year reduces economic growth by about 1.1 percentage points.
  • Analysis of decade or longer climate shifts shows similar, substantially negative effects of higher temperature on growth in poor countries.

The researchers note that temperature could affect economic activity in poor countries in two ways:

  • By influencing the level of output, for example, through crop yields.
  • Or by influencing the growth rate of output, for example, by affecting investment or the institutions that influence productivity growth.
  • Underlying these aggregate effects, evidence suggests that higher temperatures substantially reduce agricultural output, industrial output, investment, innovation and political stability.

These findings have implications for long-standing debates about the role of climate in economic development, and for more recent debates about the possible impact of future climate change.  By showing that changes in temperature have large effects on growth in poor countries, the authors demonstrate that climate is still relevant for economic development.

Source:  Matt Nesvisky, "Climate Change and Economic Growth over the Last Half Century," NBER Digest, December 2008, and Melissa Dell, Benjamin Jones, and Benjamin Olken, "Climate Change and Economic Growth: Evidence From the Last-Half Century," National Bureau of Economic Research, June 2008.

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