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Projecting the Impact of Rising Temperatures: The Role of Macroeconomic Dynamics

Gregory Casey, Stephie Fried, Ethan Goode and Gregory P. Casey
Authors registered in the RePEc Author Service: Gregory P. Casey

No 10375, CESifo Working Paper Series from CESifo

Abstract: We use theory and empirics to distinguish between the impact of temperature on transition (temporary) and steady state (permanent) growth in output per capita. Standard economic theory suggests that the long-run growth rate of output per capita is determined entirely by the growth rate of total factor productivity (TFP). We find evidence suggesting that the level of temperature affects the level of TFP, but not the growth rate of TFP. This implies that a change in temperature will have a temporary, but not a permanent, impact on output per capita growth. To highlight the quantitative importance of distinguishing between permanent and temporary changes in economic growth, we use our empirical estimates and theoretical framework to project the impacts of future increases in temperature caused by climate change. We find losses that are substantial, but smaller than those in the existing empirical literature that assumes a change in temperature permanently affects economic growth.

Keywords: climate change; economic growth (search for similar items in EconPapers)
JEL-codes: O44 Q54 Q56 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-env and nep-gro
References: Add references at CitEc
Citations: View citations in EconPapers (4)

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Journal Article: Projecting the Impact of Rising Temperatures: The Role of Macroeconomic Dynamics (2023) Downloads
Working Paper: Projecting the Impact of Rising Temperatures: The Role of Macroeconomic Dynamics (2022) Downloads
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