Projecting the Impact of Rising Temperatures: The Role of Macroeconomic Dynamics

Arbeitspapier

We use theory and empirics to distinguish between the impact of temperature on transition (temporary) and steady state (permanent) growth in output per capita. Standard economic theory suggests that the long-run growth rate of output per capita is determined entirely by the growth rate of total factor productivity (TFP). We find evidence suggesting that the level of temperature affects the level of TFP, but not the growth rate of TFP. This implies that a change in temperature will have a temporary, but not a permanent, impact on output per capita growth. To highlight the quantitative importance of distinguishing between permanent and temporary changes in economic growth, we use our empirical estimates and theoretical framework to project the impacts of future increases in temperature caused by climate change. We find losses that are substantial, but smaller than those in the existing empirical literature that assumes a change in temperature permanently affects economic growth.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 10375

Classification and Topics

• Classification: Wirtschaft ; Environment and Growth ; Climate; Natural Disasters and Their Management; Global Warming ; Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
• Subject: climate change ; economic growth

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Casey, Gregory ; Fried, Stephie ; Goode, Ethan
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2023

Further information

• Handle: http://hdl.handle.net/10419/272019
• Last update: 10.03.2025, 11:46 AM CET