Weather, Climate and Total Factor Productivity

Marco Letta*, Richard S.J. Tol

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

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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.

Original languageEnglish
Pages (from-to)283–305
Number of pages23
JournalEnvironmental and Resource Economics
Volume73
Early online date22 Jun 2018
DOIs
Publication statusPublished - 15 May 2019

Keywords

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

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