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Dynamic impacts
• The problem– Sources– Mechanisms– Possible futures– Consequences
• The solution
-25.0
-22.5
-20.0
-17.5
-15.0
-12.5
-10.0
-7.5
-5.0
-2.5
0.0
2.5
5.0
-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5
Wel
fare
-equ
ival
ent i
ncom
e ch
ange
(in
perc
ent)
Global warming (in degrees centrigrade)
Climate change and growth• Climate change can affect welfare
through four channels– Utility (e.g., species loss)– Labour (e.g., morbidity)– Output per worker (e.g., agricultural
productivity)– Depreciation (e.g., floods)
• Utility: no impact• If output is lower in period t, less is
consumed and less is saved, so that there is less capital and less output in period t+1
• Ditto for higher depreciation
Climate change and growth -2• In principle, people could compensate
through increased savings– Not rational as would cut consumption even
more– Besides, the returns to capital have fallen
• If the labour force shrinks, there is more capital per worker, higher labour productivity, higher wages– The rational response is to consume the
windfall, save less, until the capital-labour ratio is back at its desired value
– Effect is small as the health impacts of climate change primarily fall on the non-working population
Climate and poverty• Cool countries tend to be rich, hot
countries tend to be poor
0
10,000
20,000
30,000
40,000
50,000
60,000
-10 -5 0 5 10 15 20 25 30
Inco
me
(dol
lar (
MER
) per
per
son
per y
ear)
, 200
0
Annual temperature (degree Celsius), 1961-1990
0
5,000
10,000
15,000
20,000
25,000
30,000
-10 -5 0 5 10 15 20 25 30
Inco
me
(dol
lar (
PPP)
per
per
son
per y
ear)
, 200
0
Annual temperature (degree Celsius), 1961-1990
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
-10 -5 0 5 10 15 20 25 30
Inco
me
(dol
lar (
PPP)
per
per
son
per y
ear)
, 190
0
Annual temperature (degree Celsius), 1961-1990
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
-10 -5 0 5 10 15 20 25 30
Inco
me
(dol
lar (
PPP)
per
per
son
per y
ear)
, 182
0
Annual temperature (degree Celsius), 1961-1990
0
500
1,000
1,500
2,000
2,500
3,000
3,500
-10 -5 0 5 10 15 20 25 30
Inco
me
(dol
lar (
PPP)
per
per
son
per y
ear)
, 170
0
Annual temperature (degree Celsius), 1961-1990
0
500
1,000
1,500
2,000
2,500
3,000
3,500
-10 -5 0 5 10 15 20 25 30
Inco
me
(dol
lar (
PPP)
per
per
son
per y
ear)
, 160
0
Annual temperature (degree Celsius), 1961-1990
0
500
1,000
1,500
2,000
2,500
3,000
-10 -5 0 5 10 15 20 25 30
Inco
me
(dol
lar (
PPP)
per
per
son
per y
ear)
, 150
0
Annual temperature (degree Celsius), 1961-1990
Climate and poverty• Cool countries tend to be rich, hot
countries tend to be poor• Correlation sure, but causation?
Dell, Jones, Olken, 2009, AER
Dell,
Jone
s, Ol
ken,
201
2, A
EJ M
acro
Climate and poverty• Cool countries tend to be rich, hot
countries tend to be poor• Correlation sure, but causation?• Diamond: Climate and geography are
destiny
Olsson, Hibbs, 2005, EER
Climate and poverty• Cool countries tend to be rich, hot
countries tend to be poor• Correlation sure, but causation?• Diamond: Climate and geography are
destiny• Sachs: Climate and geography are
important
Barrios, Bertinelli, Strobl, 2010, REStat
Climate and poverty• Cool countries tend to be rich, hot
countries tend to be poor• Correlation sure, but causation?• Diamond: Climate and geography are
destiny• Sachs: Climate and geography are
important• Acemoglu: Climate and geography were
important• Easterly: Climate and geography are not
important and were never
Acem
oglu
, Joh
nson
, Rob
inso
n, 2
001,
AER
Climate and poverty• Cool countries tend to be rich, hot
countries tend to be poor• Correlation sure, but causation?• Diamond: Climate and geography are
destiny• Sachs: Climate and geography are
important• Acemoglu: Climate and geography were
important• Easterly, Rodrik: Climate and geography
helped to shape institutions, but nowadays institutions rule
Poverty traps?• If infant mortality is high (and it is in hot
and wet climes), parents would have many children to ensure that at least a few survive. Risk-average parents would have more children than they want. Parents could not afford health care and education. Children grow up to be poor too.
• If there is a risk of losing it all (and there is in volatile climes), there is no point in saving for the future. A feast and famine culture gets engrained. Also steers investment in non-perishables, such as education.
Climate change and poverty• Climate change could intensify such
mechanisms.• This would be an enormous welfare loss.• However, this is still speculative – and it
clear that there is no ground for fatalism– Cultures change– Infectious disease is treatable and
preventable
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