Sebastian Acevedo, Mico Mrkaic, Natalija Novta, Marcos Poplawski-Ribeiro, Evgenia Pugacheva and Petia Topalova, with contributions from Manoj Atolia, Claudio Baccianti, Ricardo Marto, and
support from Gavin Asdorian, Olivia Ma, Jilun Xing and Yuan Zeng
THE EFFECTS OF WEATHER SHOCKS ONECONOMIC ACTIVITY: HOW CAN LOW-INCOME
COUNTRIES COPE?
Average global temperature from 20,000 BCE to present(Degrees Celsius)
2
+1.8°C
+3.7°C
2100
Sources: Intergovernmental Panel on Climate Change (IPCC); Marcott and others (2013); Matsuura and Willmott (2007); Shakun and others (2012); and IMF staff calculations.
15
16
17
18
19
20
21
22
23
–20,000 –18,000 –16,000 –14,000 –12,000 –10,000 –8,000 –6,000 –4,000 –2,000 0 2,000
Average global temperatureUnmitigated climate change (RCP8.5) scenarioIntermediate (RCP4.5) scenario
Most mammoths go extinct
Last glacial period ends
The Great Pyramid completed
Industrial revolution begins, ca.1760
1920
Early farming begins
–0.5
0.0
0.5
1.0
1.5
1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
The warming coincides with increasing GHG concentration
3
Global Temperature Forcings(Land and ocean temperature, deviations from 1880–1910 avg., degrees Celsius)
Temperature
GHG
Natural
Human
Sources: Carbon Dioxide Information Analysis Center; National Aeronautics and Space Administration (NASA) Goddard Institute for Space Studies; Roston and Migliozzi (2015); and IMF staff calculations.
Natural factors:• Orbital changes• Solar output• Volcanic activity
Human factors:• Land use• Ozone emissions• Aerosols emissions• GHG emissions
Does warming matter for the economy?
• Annual data– GDP, temperature and rainfall
– 180 countries over 65 years.
• Changes in weather exogenous estimate causal links
• Our specification can accommodate nonlinearities:
ln(yt+h) – ln(yt) = αT + βT2 + region-year & country fix. eff.
4
What do we find?
5
• Find a robust concave relationship between GDP per capita and temperature.
• Temperature is exogenous.
• Low temperatures can have a positive effect.
• High temperatures strong negative impact.
• Optimal temperature ~13-15 °C
Effect of temperature on growth
Temperature
–15
–10
–5
0
5
10
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30
Per
cent
Average effect
What do we find?
6
• Find a robust concave relationship between GDP per capita and temperature.
• Temperature is exogenous.
• Low temperatures can have a positive effect.
• High temperatures strong negative impact.
• Optimal temperature ~13-15 °C
Effect of temperature on growth
Temperature
–15
–10
–5
0
5
10
–3
–2
–1
0
1
2
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30
Per
cent
Per
cent
Marginal effect (left scale)
Average effect (right scale)
024681012141618
–3
–2
–1
0
1
2
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30
Per
cent
of c
ount
ries
Per
cent
Most AEs not affected in the medium term
7
Distribution of Advanced Economies across temperature
Estimate 90 percent confidence intervalPercent of countries (right scale) Median temperature
Iceland
Germany
Singapore
USA
• Find a robust concave relationship between GDP per capita and temperature.
• Temperature is exogenous.
• Low temperatures can have a positive effect.
• High temperatures strong negative impact.
• Optimal temperature ~13-15 °C
024681012141618
–3
–2
–1
0
1
2
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30
Per
cent
of c
ount
ries
Per
cent
Significant negative effect forthe median emerging market economy
8
Russia
Brazil
Bahrain
Egypt
Estimate 90 percent confidence intervalPercent of countries (right scale) Median temperature
Distribution of Emerging Market Economies across temperature
• Find a robust concave relationship between GDP per capita and temperature.
• Temperature is exogenous.
• Low temperatures can have a positive effect.
• High temperatures strong negative impact.
• Optimal temperature ~13-15 °C
024681012141618
–3
–2
–1
0
1
2
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30
Per
cent
of c
ount
ries
Per
cent
Even greater negative effect forthe median low income country
9
MongoliaMauritania
BangladeshNigeria
Estimate 90 percent confidence intervalPercent of countries (right scale) Median temperature
Distribution of Low Income Countries across temperature
• Find a robust concave relationship between GDP per capita and temperature.
• Temperature is exogenous.
• Low temperatures can have a positive effect.
• High temperatures strong negative impact.
• Optimal temperature ~13-15 °C
… with adverse effects concentrated in LICs and EMs where the majority of world’s population currently lives
11
Further Findings• Temperature effects are long lasting…• …and work through several channels
– Lower productivity– Reduce investment– Reduce effective labor supply
• Buffers and sound policies can help.• Climate adaptation can also help, but…
12
…but, LICs have low adaptation capacity
13Sources: Notre Dame Global Adaptation Index; and IMF staff calculations.
Also, LICs have not caused the problem
14
• CO2 emissions in LICs are very small both in total as well as per capita.
• In addition, LICs have started increasing their emissions much later than AE’s.
• Since CO2 stays in the atmosphere for centuries, the aggregate contribution of LICS is tiny. 0
2468
1012
AdvancedEconomies
EmergingMarket
Economies
Low IncomeCountries
Average CO2 emissions per capita, 2014(Metric tons)
Sources: Carbon Dioxide Information Analysis Center; and IMF staff calculations.
In conclusion
• Low income countries– will suffer disproportionate economic damages from warming,– and have contributed little to the problem.
• Adaptation can help, but capacity to adapt in LICs is limited. • International community must play a key role in helping LICs cope with
climate change– Climate change related transfers to LICs will help alleviate a negative externality and
are also a moral imperative.– Only a concerted global effort to curb emissions can limit the long-term risks of
climate change.
15