Climate shocks and economic growth

the excess of heat enervates the body, and renders men so slothful and dispirited that nothing but the fear of chastisement can oblige them to perform any laborious duty: slavery is there more reconcilable to reason.

That is the Baron of Montesquieu writing nearly three centuries ago. Sentiments like these helped to discredit simple theories of heat and the poverty of nations.

We’d be wrong, however, to dismiss climate as a cause of underdevelopment because of petty prejudices. David Landes gives a good account why climate might have a more legitimate effect on economic growth.

Now Ben Olken presents some hard evidence. He’s presenting at the IGC Growth Week alongside a number of climate change luminaries.

Olken, Ben Jones, and Melissa Dell have a recent paper showing that temperature shocks hurt growth; year by year, a 1 degree change in temperatures leads to a 1 percent fall in income growth–albeit only in poor countries.

The growth effect isn’t felt just in agriculture, but in innovation and other sectors as well. Something bigger and more complex than crop failure is going on here.

Most interesting to me is that the long term effect of climate shocks is less than the short term damage, suggesting that economies adapt to temperature shifts. Before the global warming doubters gloat, however, it’s worth noting a few things.

One is that, for lack of data, the adaptation figure seems to be pretty imprecise. So adaptation could actually be pretty low. I’d like to see the confidence interval.

Another point is that the evidence shows that climate change is especially harmful to growth not because of trend change, but because of volatility. If carbon emissions make weather more unpredictable, then nations might expect permanent growth harm as they are constantly thrown off track and forced to adapt.

If anything, say the authors, the implications for poor country growth might actually be worse once we account for these findings.

4 thoughts on “Climate shocks and economic growth

  1. Two things:

    1) Data from these countries is notoriously . . . imprecise.

    2) It’s probably disease.

  2. I’m a little surprised that Olken et al. use temperature as an explanatory variable, rather than, say, the absolute value of any deviation from the long-term average temperature. I would think that periods that are unusually cool would have a detrimental impact, as well as periods that are unusually hot.

    Also, I’d be hesitant to infer much regarding the ability of states to cope with global warming from these results. Most of the variance in the temperature data must come from short-term year-to-year changes. So – after an unusually hot year – the climate probably regresses to the mean. Dealing with long-term shifts in average temperatures may be substantially more difficult.

  3. The claim that climate change negatively impacts poor countries worse than rich countries is not a new idea, nor surprising. Does it not make sense that those already at the margin would be hit the hardest by any adverse change, be it in climate or, for example, a global financial crisis? While I agree that supporting such claims with evidence is important, I do not see this as “first-order importance” (page 26 of Dell, Jones and Olken’s paper linked above).