The Role of temperature, Precipitation and CO2 emissions on Countries’ Economic Growth and Productivity

Rigas, Nikos and Kounetas, Konstantinos (2021): The Role of temperature, Precipitation and CO2 emissions on Countries’ Economic Growth and Productivity.

Abstract

The world's climate has already changed measurably in response to accumulated greenhouse gases emissions. These changes, as well as projected future disruptions, such as increase of temperature, have prompted intense research. A significant body of literature on climate change and economic growth signifies a negative relationship between the two. However, considerable uncertainty surrounds the effect of increasing temperatures combined with releases of anthropogenic emissions to the atmosphere. By applying detailed country level data in the 1961-2013 period this paper documents the relationship between weather variables, CO2emissions, share of renewable energy sources, gross domestic product and total factor productivity in a standard Cobb-Douglas production function by using an instrumental variable approach. Our findings suggest that economic growth has been positively affected by temperature and CO2emissions, while climate vulnerability varies significantly between rich-poor countries. Furthermore, as soon as we take into account renewable sources as an instrument, the negative effect on CO2 emissions demonstrates its impact for optimal environmental policies design. Finally, our results also provide evidence for the existence of an inverted U-shaped relationship for temperature and emissions.

• Item Type: MPRA Paper
• Language: English
• Keywords: Climate Change, Countries' TFP, CO2 emissions, Renewable Energy Sources, Temperature.
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C26 - Instrumental Variables (IV) Estimation; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q40 - General; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate ; Natural Disasters and Their Management ; Global Warming

References

Apergis, N., & Payne, J. E. (2010). Renewable energy consumption and economic growth: evidence from a panel of OECD countries. Energ policy, 38(1), 656-660. Arceo, E., Hanna, R., & Oliva, P. (2016). Does the effect of pollution on infant mortality differ between developing and developed countries? Evidence from Mexico City. Econ J, 126(591), 257-280. Batten, S. (2018). Climate change and the macro-economy: a critical review. Benavides, M., Ovalle, K., Torres, C., & Vinces, T. (2017). Economic growth, renewable energy and methane emissions: is there an environmental Kuznets curve in Austria?. International Journal of Energy Economics and Policy, 7(1). Brown, P. T., Li, W., Jiang, J. H., & Su, H. (2016). Unforced surface air temperature variability and its contrasting relationship with the anomalous TOA energy flux at local and global spatial scales. J Climate, 29(3), 925-940. Burke, M., Hsiang, S. M., & Miguel, E. (2015). Global non-linear effect of temperature on economic production. Nature, 527(7577), 235-239. Caron, J., & Fally, T. (2018). Per capita income, consumption patterns, and CO2 emissions (No. w24923). Nat Bur Econ Res. Cai, X., Lu, Y., & Wang, J. (2018). The impact of temperature on manufacturing worker productivity: evidence from personnel data. J Comp Econ, 46(4), 889-905. Cameron, A. C., & Trivedi, P. K. (2005). Microeconometrics: methods and applications. Cambridge university press. Chang, T. Y., Graff Zivin, J., Gross, T., & Neidell, M. (2019). The effect of pollution on worker productivity: evidence from call center workers in China. Am Econ J-Appl Econ, 11(1), 151-72. Chen, S., Oliva, P., & Zhang, P. (2018). Air pollution and mental health: evidence from China (No. w24686). Nat Bur Econ Res Cline, W. R. (1992). The economics of global warming. Institute for International Economics, Washington, DC, 399. Cline, W. R. (2007). Global warming and agriculture: Impact estimates by country. Peterson Institute. Cook, N., & Heyes, A. (2020). Brain freeze: outdoor cold and indoor cognitive performance. J Environ Econ Manag, 102318. Damania, R., Desbureaux, S., & Zaveri, E. (2019). Does rainfall matter for economic growth? Evidence from global sub-national data (1990–2014). The World Bank. Dell, M., Jones, B. F., & Olken, B. A. (2014). What do we learn from the weather? The new climate-economy literature. J Econ Lit, 52(3), 740-98. Dell, M., Jones, B. F., & Olken, B. A. (2012). Temperature shocks and economic growth: Evidence from the last half century. Am Econ J-Macroecon, 4(3), 66-95. Deschênes, O., & Greenstone, M. (2007). The economic impacts of climate change: evidence from agricultural output and random fluctuations in weather. Am Econ Rev, 97(1), 354-385. Empora, N., & Mamuneas, T. (2011). The effect of emissions on US state total factor productivity growth. Review of Economic Analysis, 3(2), 149-172. Feenstra, R. C., Inklaar, R., & Timmer, M. P. (2015). The next generation of the Penn World Table. Am Econ Rev, 105(10), 3150-82. Frankhauser, S., & Tol, R. S. (1996). Climate change costs: recent advancements in the economic assessment. Energ Policy, 24(7), 665-673. Fu, S., Viard, V. B., & Zhang, P. (2018). Air pollution and manufacturing firm productivity: Nationwide estimates for China. Available at SSRN 2956505. Graff Zivin, J., & Neidell, M. (2012). The impact of pollution on worker productivity. Am Econ Rev, 102(7), 3652-73. Hanna, R., & Oliva, P. (2015). The effect of pollution on labor supply: Evidence from a natural experiment in Mexico City. J Public Econ, 122, 68-79. He, J., Liu, H., & Salvo, A. (2019). Severe air pollution and labor productivity: Evidence from industrial towns in China. Am Econ J-Appl Econ, 11(1), 173-201. Hsiang, S. M. (2010). Temperatures and cyclones strongly associated with economic production in the Caribbean and Central America. P Natl Acad Sci USA, 107(35), 15367-15372. Ji, X., & Cobourn, K. M. (2020). Weather Fluctuations, Expectation Formation, and Short-Run Behavioral Responses to Climate Change. Environ Resour Econ, 1-43. Kalaitzidakis, P., Mamuneas, T. P., & Stengos, T. (2018). Greenhouse emissions and productivity growth. Journal of Risk and Financial Management, 11(3), 38. Kaufmann, R. K., Kauppi, H., & Stock, J. H. (2006). Emissions, concentrations, & temperature: a time series analysis. Climatic Change, 77(3-4), 249-278. Kahn, M. E., Mohaddes, K., Ng, R. N., Pesaran, M. H., Raissi, M., & Yang, J. C. (2019). Long-term macroeconomic effects of climate change: A cross-country analysis (No. w26167). Nat Bur Econ Res Koundouri, P., Carson, R., & Nauges, C. (2010). Arsenic Mitigation in Bangladesh: A Household Labor Market Approach. Le, T. H., Chang, Y., & Park, D. (2020). Renewable and nonrenewable energy consumption, economic growth, and emissions: International evidence. Energ J, 41(2). Leppänen, S., Solanko, L., & Kosonen, R. (2017). The impact of climate change on regional government expenditures: evidence from Russia. Environ Resour Econ, 67(1), 67-92. Letta, M., & Tol, R. S. (2019). Weather, climate and total factor productivity. Environ Resour Econ, 73(1), 283-305. Matsuura, K., & Willmott, C. J. (2015). Terrestrial air temperature: 1900–2014 gridded monthly time series. Available at climate. geog. udel. edu/~ climate/html\_pages/Global2014/README. GlobalTsT2014. html. Accessed December, 14, 2016. Mendelsohn, R., Nordhaus, W. D., & Shaw, D. (1994). The impact of global warming on agriculture: a Ricardian analysis. Am Econ Rev, 753-771. Mendelsohn, R. (2008). The impact of climate change on agriculture in developing countries. Journal of Natural Resources Policy Research, 1(1), 5-19. Nordhaus, W. D. (1992). The "dice" model: Background and structure of a dynamic integrated climate-economy model of the economics of global warming (No. 1009). Cowles Foundation for Research in Economics, Yale University. Nordhaus, W. D. (1991). A Sketch of the Economics of the Greenhouse Effect. Am Econ Rev, 81(2), 146-150. Nordhaus, W. D., & Boyer, J. (2000). Warming the world: economic models of global warming. MIT press. Nordhaus, W. D. (2006). Geography and macroeconomics: New data and new findings. P Natl Acad Sci USA, 103(10), 3510-3517. Olea, J. L. M., Pflueger, C., & Wang, S. (2013). A Robust Test for Weak Instruments in Stata. SSRN Electronic Journal. Pflueger, C. E., & Wang, S. (2015). A robust test for weak instruments in Stata. Stata J, 15(1), 216-225. Pindyck, R. S. (2020). What We Know and Don't Know about Climate Change, and Implications for Policy (No. w27304). Nat Bur Econ Res Qiu, H., Schooling, M., Sun, S., Tsang, H., Yang, Y., Lee, Ruby Siu-Yin, Wong, C., & Tian, L. (2018). Long-term exposure to fine particulate matter air pollution and type 2 diabetes mellitus in elderly: a cohort study in Hong Kong. Environ Int, 113, 350-356. Somanathan, E., Somanathan, R., Sudarshan, A., & Tewari, M. (2015). The impact of temperature on productivity and labor supply: Evidence from Indian manufacturing. Indian Statistical Institute, New Delhi, India. Stern, N. H., Peters, S., Bakhshi, V., Bowen, A., Cameron, C., Catovsky, S., Crane, D., Cruickshank, S., Dietz, S., Edmonson, N., & Garbett, S. L. (2006). Stern Review: The economics of climate change (Vol. 30, p. 2006). Cambridge: Cambridge University Press. Stern, N., & Stern, N. H. (2007). The economics of climate change: the Stern review. Cambridge University press. Tol, R. S. (2018). The economic impacts of climate change. Rev Env Econ Policy, 12(1), 4-25. Tol, R. S. (2009). The economic effects of climate change. J Economic Perspect, 23(2), 29-51. Tol, R. S. (2010). The economic impact of climate change. Perspektiven der Wirtschaftspolitik, 11, 13-37. Tol, R. S. (2005). The marginal damage costs of carbon dioxide emissions: an assessment of the uncertainties. Energ policy, 33(16), 2064-2074. Zhang, P., Deschenes, O., Meng, K., & Zhang, J. (2018). Temperature effects on productivity and factor reallocation: Evidence from a half million Chinese manufacturing plants. J Environ Econ Manag, 88, 1-17. Zhang, P., Zhang, J., & Chen, M. (2017). Economic impacts of climate change on agriculture: The importance of additional climatic variables other than temperature and precipitation. J Environ Econ Manag, 83, 8-31. Zhao, X., Gerety, M.,& Kuminoff, N. V. (2018). Revisiting the temperature-economic growth relationship using global subnational data. J Environ Manage, 223, 537-544.