How Much Will Global Warming Cool Global Growth?
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Abstract
Does a rise in temperature decrease the level of GDP in affected countries or the permanent growth rate of their GDP? Differing answers to this question lead prominent estimates of climate damages to diverge by an order of magnitude. This paper combines indirect evidence on economic growth with new empirical estimates of the dynamic effects of temperature on GDP to argue that warming has persistent, but not permanent, effects on growth. We start by presenting a range of evidence that technology flows tether country growth rates together, preventing temperature change from causing them to diverge permanently. We then use data from a panel of countries to show that temperature shocks have large and persistent effects on GDP, driven in part by persistence in temperature itself. These estimates imply projected future impacts that are three to five times larger than level effect estimates and two to four times smaller than permanent growth effect estimates, with larger discrepancies for initially hot and cold countries. *Nath: Federal Reserve Bank of San Francisco; Ramey: UC San Diego and NBER; Klenow: Stanford University and NBER. We are grateful to Marshall Burke, Tamma Carleton, Steve Cicala, Graham Elliott, James Hamilton, David Hémous, Solomon Hsiang, Ezra Oberfield, Richard Rogerson, Esteban RossiHansberg, James Stock, John Van Reenen, and participants at the Princeton Macro Lunch, LSE Environment Week, the Coase Project Conference, the Society for Economic Dynamics Conference, and the IMF for helpful comments, and to Jean-Felix Brouillette and Walker Lewis for excellent research assistance. Any views expressed in this paper are those of the authors and do not necessarily represent the views of the Federal Reserve System or its staff. CLIMATE CHANGE AND ECONOMIC GROWTH 1