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

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.