The impact of climate change on economic output in Chile: past and future

Karla Hernández and Carlos Madeira

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: We study the impact of some weather variables (precipitation and temperatures) on GDP by using a region-industry panel data for Chile over the period 1985-2017. We find no effect of precipitation changes on GDP, but the results confirm a negative impact of higher summer temperatures on Agriculture-Silviculture and Fishing. An increase of one Celsius degree in January implies a 3% and 12% GDP reduction in Agriculture and Fishing, respectively, plus a negative effect on Construction, Electricity, Gas, and Water. Substantial uncertainty can be argued around these results due to the unavailability of region-industry GDP at a quarterly or monthly frequency and the assumption of fixed-coefficients over time. Stress test exercises for 2050 and 2100 that use all the industry coefficients estimated from our model or from an USA model imply a small effect of climate change on the overall Chilean GDP relative to a scenario without further climate change. However, these results should be taken with caution due to the overall fitness of the model. Indeed, under some parameter settings of the model, our stress test implies that the Chilean GDP would fall between -14.8% and -9% in 2050 and between -29.6% and -16.8% in 2100 relative to a scenario without further climate change. t further climate change. We also review several studies for the future impact of climate change during the 21st century. Some studies suggest that Chile is likely to suffer mild effects in terms of GDP growth, labor productivity and mortality costs. However, the studies of Kahn et al. (2019), Kalkuhl and Wenz (2020) and Swiss Re (2021) predict that Chile may suffer significant GDP costs due to the adaptation difficulties in a warmer weather. Furthermore, several studies find that Chile is facing non-GDP related problems from climate change, such as air pollution, drought, water stress, migration and changes in land classification.

Date: 2021-12
New Economics Papers: this item is included in nep-agr, nep-dev, nep-ene and nep-env
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Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchwp:933

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