The Adverse Consequences Of Global Harvest And Weather Disruptions On Economic Activity

Extreme weather events are known to be detrimental for local economic activity, but could also affect countries that are not directly exposed to the extreme weather conditions through global agricultural production shortfalls and price surges induced by such events. For a panel of 75 countries, we show that increases in global agricultural commodity prices that are caused by harvest disruptions or unfavourable weather conditions in other regions of the world significantly curtail economic activity. The impact is considerably stronger in advanced countries, despite the lower shares of food in household expenditures these countries have compared to low-income countries. Furthermore, we find weaker effects in countries that are net exporters of agricultural products, have large domestic agricultural sectors and/or are less integrated in global markets for non-agricultural trade. Once we control for these characteristics, the effects on economic activity become smaller when the country’s income per capita is higher. Overall, these findings suggest that the consequences of climate change on advanced countries may be larger than previously thought.