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Global temperature, R&D expenditure, and growth

Michael Donadelli, Patrick Grüning, Marcus Jüppner () and Renatas Kizys

No 188, SAFE Working Paper Series from Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt

Abstract: We shed new light on the macroeconomic effects of rising temperatures. In the data, a shock to global temperature dampens expenditures in research and development (R&D). We rationalize this empirical evidence within a stochastic endogenous growth model, featuring temperature risk and growth sustained through innovations. In line with the novel evidence in the data, temperature shocks undermine economic growth via a drop in R&D. Moreover, in our endogenous growth setting temperature risk generates non-negligible welfare costs (i.e., 11% of lifetime utility). An active government, which is committed to a zero fiscal deficit policy, can offset the welfare costs of global temperature risk by subsidizing the aggregate capital investment with one-fifth of total public spending.

Keywords: Global Temperature; R&D; Welfare Costs (search for similar items in EconPapers)
JEL-codes: E30 G12 Q00 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-env, nep-ino and nep-mac
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:188

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