Long-Term Macroeconomic Effects of Climate Change: A Cross-Country Analysis

Matthew Kahn, Kamiar Mohaddes, Ryan Ng, Mohammad Pesaran, Mehdi Raissi and Jui-Chung Yang

No 2019/215, IMF Working Papers from International Monetary Fund

Abstract: We study the long-term impact of climate change on economic activity across countries, using a stochastic growth model where labor productivity is affected by country-specific climate variables—defined as deviations of temperature and precipitation from their historical norms. Using a panel data set of 174 countries over the years 1960 to 2014, we find that per-capita real output growth is adversely affected by persistent changes in the temperature above or below its historical norm, but we do not obtain any statistically significant effects for changes in precipitation. Our counterfactual analysis suggests that a persistent increase in average global temperature by 0.04°C per year, in the absence of mitigation policies, reduces world real GDP per capita by more than 7 percent by 2100. On the other hand, abiding by the Paris Agreement, thereby limiting the temperature increase to 0.01°C per annum, reduces the loss substantially to about 1 percent. These effects vary significantly across countries depending on the pace of temperature increases and variability of climate conditions. We also provide supplementary evidence using data on a sample of 48 U.S. states between 1963 and 2016, and show that climate change has a long-lasting adverse impact on real output in various states and economic sectors, and on labor productivity and employment.

Keywords: WP; math display; Climate change; economic growth; adaptation; counterfactual analysis; climate variable; effects of climate change; growth-climate change equation; climate variability; growth model; HPJ-FE estimate; country climate-economy variation; weather conditions; climate change adaptation; Production growth; Public expenditure review; Climate policy; Global (search for similar items in EconPapers)
Pages: 59
Date: 2019-10-11
New Economics Papers: this item is included in nep-ene, nep-env, nep-isf and nep-mac
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Citations: View citations in EconPapers (55)

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Related works:
Journal Article: Long-term macroeconomic effects of climate change: A cross-country analysis (2021)
Working Paper: Long-Term Macroeconomic Effects of Climate Change: A Cross-Country Analysis (2019)
Working Paper: Long-Term Macroeconomic Effects of Climate Change: A Cross-Country Analysis (2019)
Working Paper: Long-term macroeconomic effects of climate change: A cross-country analysis (2019)
Working Paper: Long-Term Macroeconomic Effects of Climate Change: A Cross-Country Analysis (2019)
Working Paper: Long-Term Macroeconomic Effects of Climate Change: A Cross-Country Analysis (2019)
Working Paper: Long-Term Macroeconomic Effects of Climate Change: A Cross-Country Analysis (2019)
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