Together with a co-author of mine, Martin Henseler from the Universite du Havre, France, I have a new working paper entitled “The impact of temperature on production factors”. We believe that the results significantly update previous studies on the impact of climatic variables on production factors and GDP growth and help policy makers to more clearly understand which impacts from climatic changes are likely to matter most in the future. Furthermore, these results should help to more carefully calibrate the damage functions in integrated assessment models.
Here is the abstract:
In a recent econometric study Burke et al. (2015) find that temperature affects economic growth non-linearly. We extend their analysis by investigating the influence of temperature on the main components of production, namely total factor productivity, capital stock and employment. Our panel dataset includes observations on 103 countries for the period 1961-2010. We confirm Burke et al. (2015) assumption that the main impacts of temperature arise in total factor productivity, which is significantly negatively affected for high levels of temperature. Neither capital nor employment seem to be affected by temperature. However, we find that temperature impacts rich and poor differently, with the poor being significantly more strongly impacted for higher temperature levels. These results hold across all components of production. We find these results to be robust across different cutoff points dividing the rich and poor samples, continue to hold if we use temperature anomaly instead of temperature, and also apply for further robustness exercises. The findings provide empirical evidence for negative impacts of temperature on poor countries and support the political and scientific discussions of mitigation policies and climate change impacts.