Climate change and economic growth: Evidence from the last half century


January 18, 2011

Because climate change is a global phenomenon and its potential effects diverse, understanding the economic impacts is highly complex. Agriculture, fishing, migration, health and tourism could all be affected; in many ways the impacts are likely to be negative, but some could be positive.

A 2008 paper by researchers from Harvard, MIT and Northwestern, “Climate Change and Economic Growth: Evidence from the Last Half Century,” estimates the potential effect of climate change on nations’ economic growth. The authors do this by examining the relationship over the past 50 years between variation in temperature and precipitation levels on global economic activity.

The findings include:

  • Global temperature increases have little effect on rich countries’ economic growth; at the same time, they significantly reduce poorer countries’ growth.
  • In poorer countries, a temperature rise of 1 degree centigrade over a year reduces growth by 1.1 percentage points.
  • Higher temperatures increase poorer nations’ political instability while reducing their agricultural output, industrial output and aggregate investment.

The researchers state that the results suggest that climate change may substantially widen the economic divide between well-off and poorer countries. They suggest that further work is needed to identify precise causal mechanisms. This paper suggests such analysis is of first-order importance, as the economic effects in poor countries appear large.

Tags: greenhouse gases, pollution, water


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Citation: Dell, Melissa; et al. "Climate Change and Economic Growth: Evidence from the Last Half Century", National Bureau of Economic Research, June, 2008, Working Paper 14132. PDF.