Weather, Climate and Total Factor Productivity

Marco Letta, Richard S.J. Tol

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

Recently it has been hypothesized that climate change will affect total factor productivity growth. Given the importance of TFP for long-run economic growth, if true this would entail a substantial upward revision of current impact estimates. Using macro TFP data from a recently developed dataset in the Penn World Table, we test this hypothesis by directly examining the nature of the relationship between annual temperature shocks and TFP growth rates in the period 1960–2006. The results show a negative relationship only exists in poor countries, where a 1 °C annual increase in temperature decreases TFP growth rates by about 1.1–1.8 percentage points, whereas the impact is indistinguishable from zero in rich countries. Extrapolating from weather to climate, the possibility of dynamic effects of climate change in poor countries increases concerns over the distributional issues of future impacts and, from a policy perspective, restates the case for complementarity between climate policy and poverty reduction.

LanguageEnglish
Pages1-23
Number of pages23
JournalEnvironmental and Resource Economics
DOIs
Publication statusAccepted/In press - 2019

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total factor productivity
weather
climate change
complementarity
climate
environmental policy
economic growth
poverty
temperature
Weather
Climate
Total factor productivity
Climate change
Temperature
TFP growth
test
world
effect
policy

Keywords

  • Climate change
  • Economic growth
  • Total factor productivity
  • Weather variability

Cite this

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abstract = "Recently it has been hypothesized that climate change will affect total factor productivity growth. Given the importance of TFP for long-run economic growth, if true this would entail a substantial upward revision of current impact estimates. Using macro TFP data from a recently developed dataset in the Penn World Table, we test this hypothesis by directly examining the nature of the relationship between annual temperature shocks and TFP growth rates in the period 1960–2006. The results show a negative relationship only exists in poor countries, where a 1 °C annual increase in temperature decreases TFP growth rates by about 1.1–1.8 percentage points, whereas the impact is indistinguishable from zero in rich countries. Extrapolating from weather to climate, the possibility of dynamic effects of climate change in poor countries increases concerns over the distributional issues of future impacts and, from a policy perspective, restates the case for complementarity between climate policy and poverty reduction.",
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Weather, Climate and Total Factor Productivity. / Letta, Marco; Tol, Richard S.J.

In: Environmental and Resource Economics, 2019, p. 1-23.

Research output: Contribution to JournalArticleAcademicpeer-review

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AU - Tol, Richard S.J.

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