Long-Term Macroeconomic Effects of Climate Change: A Cross-Country Analysis
IMF Working Papers, October 11, 2019
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- Long-Term Macroeconomic Effects of Climate Change: A Cross-Country Analysis
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Bibliographic details
- Authors: Matthew E. Kahn, Kamiar Mohaddes, Ryan N. C. Ng, M. Hashem Pesaran, Mehdi Raissi, Jui-Chung Yang
- Published: October 11, 2019
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513514598.001
Research question and approach
- Uses a stochastic growth model where labor productivity is affected by country-specific climate variables defined as deviations of temperature and precipitation from their historical norms.
- Empirical analysis based on a panel data set of 174 countries over the years 1960 to 2014.
- Supplementary analysis using data on a sample of 48 U.S. states between 1963 and 2016.
Key empirical findings
- Per-capita real output growth is adversely affected by persistent changes in temperature above or below its historical norm.
- No statistically significant effects detected for changes in precipitation.
- Climate change has a long-lasting adverse impact on real output in various U.S. states and economic sectors, and on labor productivity and employment (based on the 48-state sample).
Counterfactual projections
- A persistent increase in average global temperature by 0.04°C per year, in the absence of mitigation policies, reduces world real GDP per capita by more than 7 percent by 2100.
- Abiding by the Paris Agreement, thereby limiting the temperature increase to 0.01°C per annum, reduces the loss substantially to about 1 percent by 2100.
- Effects vary significantly across countries depending on the pace of temperature increases and variability of climate conditions.
Policy-relevant implications (as presented)
- Mitigation that limits temperature increases (for example, the Paris Agreement trajectory of 0.01°C per annum) substantially reduces projected long-term losses to world real GDP per capita compared with an unabated trajectory of 0.04°C per year.
- Cross-country heterogeneity in impacts implies that the pace of temperature increases and climate variability should inform country-specific assessments and responses.
Scope and limitations (as presented)
- Analysis covers 174 countries from 1960 to 2014 and a supplementary U.S. state sample from 1963 to 2016.
- Precipitation changes were not found to have statistically significant effects in the cross-country panel.
IMF Working Paper — "Long-Term Macroeconomic Effects of Climate Change: A Cross-Country Analysis" (Working Paper No. 2019/215), October 11, 2019.
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