Even temporary rises in local temperatures
significantly damage long-term economic growth in the world’s developing
nations, according to a new study co-authored by an Massachusetts Institute of
Technology (MIT) economist.
Looking at weather data over the last
half-century, the study finds that every 1 C increase in a poor country, over
the course of a given year, reduces its economic growth by about 1.3 percentage
points. However, this only applies to the world’s developing nations; wealthier
countries do not appear to be affected by the variations in temperature.
“Higher temperatures lead to substantially
lower economic growth in poor countries,” says Ben Olken, a professor of
economics at MIT, who helped conduct the research. And while it’s relatively
straightforward to see how droughts and hot weather might hurt agriculture, the
study indicates that hot spells have much wider economic effects.
“What we’re suggesting is that it’s much
broader than [agriculture],” Olken adds. “It affects investment, political
stability, and industrial output.”
Varied effects on economies
The paper, “Temperature Shocks and Economic Growth: Evidence from the Last Half
Century,” was published in the American Economic Journal: Macroeconomics.
Along with Olken, the authors are Melissa Dell PhD ’12, of Harvard University,
who was a PhD candidate in MIT’s Department of Economics when the paper was
produced, and Ben Jones PhD ’03, an economist at Northwestern University.
The study first gained public attention as
a working paper in 2008. It collects temperature and economic-output data for
each country in the world, in every year from 1950 through 2003, and analyzes
the relationship between them. “We couldn’t believe no one had done it before,
but we weren’t really sure we’d find anything at all,” Olken says.
By looking at economic data by type of
activity, not just aggregate output, the researchers concluded there are a
variety of “channels” through which weather shocks hurt economic production—by
slowing down workers, commerce, and perhaps even capital investment.
“If you think about people working in
factories on a 105-degree day with no air conditioning, you can see how it makes
a difference,” Olken says.
One consequence of this, borne out in the
data, is that the higher temperatures in a given year affect not only a
country’s economic activity at the time, but its growth prospects far into the
future; by the numbers, growth lagged following hot years.
To see why, Olken suggests, first think of
a dry year for vegetables in your backyard garden: The bad weather would hurt
the plants, but if the weather is reasonable the following year, the backyard
crop would return to its normal level. Now contrast that with problems that
affect, say, industrial and technological development, and capital investment;
temperature shocks limiting those activities can compound over time.
“If you think about economic growth, you
build on where you were last year,” Olken explains. For longer-term industrial
or technological projects, he adds, “If it’s that kind of activity that’s lost,
then it affects the country’s long-run growth rate, [and it’s] not a one-off
hit.”
Political change in the weather
Olken, Dell, and Jones also integrated data about forms of government into the
study, and found that temperature shocks are associated with an increase in political
instability. A 1 C rise in a given year, they found, raises the probability of “irregular leader transitions,” such as coups, by 3.1 percentage points in poor
countries. In turn, the authors write, “poor economic performance and political
instability are likely mutually reinforcing.”
Olivier Deschenes, an economist at the
University of California at Santa Barbara, calls the study “an important
finding because most of the prior research on the economic impacts of climate
change have focused on a few sectors of the economy, predominantly the
agricultural sector.” By contrast, he notes, the broader finding of the current
paper matters “because the growth rate is a key measure of the economic success
of a nation and the standard of living of its population.”
Deschenes, who also conducts research on
the economic and health effects of temperature changes, suggests that the “next
step” for scholars “is to identify adaptation strategies that can moderate the
negative impacts of global climate change in the coming decades.”
As Olken observes, the study does not try
to account for all the possible problems that could be generated by long-term
climate change, such as rising oceans, floods, or increased storms. Still, he
adds, the paper does suggest some general points about the economic impact of a
warming atmosphere. It is vital, he says, to “think about the heterogeneity of
the impact between the poor and rich countries” when leaders and policymakers
map out the problems the world may confront in the future.
“The impacts of these things are going to
be worse for the countries that have the least ability to adapt to it,” he
adds. “[We] want to think that through for the implications for future
inequality. It’s a double whammy.”
