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Climate Change and Economic Growth

November 20, 2015 Leave a comment Go to comments

There has been research to suggest that climatic conditions can have a significant effect on economic growth although they tend to be inconsistent. A paper published by the journal Nature suspects that researchers in the past have been looking at the directly relationship between temperature and economic growth. In this paper they approached the research looking for an optimal temperature, on the assumption that both extreme cold and extreme heat can harm growth. Researchers found that:

Hotter-than-usual years benefit countries, rich and poor alike, up to an average annual temperature of 13°C, after which hotter weather begins to reduce growth.

This data allowed them to deduce the likely effect of climate change – see chart.

GDP v Temperature

Brazil – an increase in temperature of 3°C (from 22°C to 25°C) = GDP 3% down

Germany – an increase in temperature of 4°C (from 9°C to 13°C) = GDP 1% up

As countries like Germany and France are on the colder side of the optimum (13°C) they tend to grow faster in hotter years in contrast to the USA and Australian whose normal temperature is the hotter side of 13°C. Some economists have argued that with global temperatures changing there is no firm baseline for comparison. However in the primary sector the growing of agricultural produce is most productive at particular temperatures. In the US those involved in jobs such as  construction and manufacturing tend to leave work an hour earlier when the temperature rose above 29°C. Therefore in order to maintain the hours worked either more people have to be employed or employees are paid extra. It is estimated that 28% of the US workforce are exposed to the weather so this may mean higher costs for businesses.

Sea-level rising

Global warming also means that the sea-level will rise and countries and cities face the decision as to whether to build costly flood defences or accept the consequences. Moreover, even if rich countries manage to fend off the worst effects of global warming, they will still feel its repercussions. Trade with more vulnerable places would decline; refugees would proliferate.

Final thought

If the global economy continues to function in a smilier vein to the recent past. climate change is expected to reshape the global economy by substantially reducing output and amplifying inequalities relative to a world without climate change. Innovation or defensive investments might reduce these effects but social conflict or disrupted trade – either from political restrictions or correlated losses around the world – could worsen them.

Sources:

Nature- Global non-linear effect of temperature on economic production – 15th September 2015

The Economist  – Putting Goldilocks to work – 24th October 2015

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