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Does Temperature affect Income?

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  • Dennis Wesselbaum

    (University of Otago)

Abstract

In this paper, I contribute to the literature on the relationship between temperature and the level of income. I build a panel data set with 198 countries over 36 years. In contrast to the existing literature, I use a Panel Vector autoregression model and identify temperature shocks with volcanic activity. I find that, in line with theory, volcanic activity creates a significant cooling effect. Then, I present estimated impulse response functions and find that the level of log GDP per capita is reduced by about three percent for more than ten years in response to a 1C increase in temperatures. My results support the existence of a direct effect of temperature on income.

Suggested Citation

  • Dennis Wesselbaum, 2021. "Does Temperature affect Income?," Economics Bulletin, AccessEcon, vol. 41(1), pages 18-27.
    • Handle: RePEc:ebl:ecbull:eb-19-00532
    as

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    References listed on IDEAS

    as
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    4. Geoffrey Heal & Jisung Park, 2016. "Editor's Choice Reflections—Temperature Stress and the Direct Impact of Climate Change: A Review of an Emerging Literature," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 10(2), pages 347-362.
    5. Melissa Dell & Benjamin F. Jones & Benjamin A. Olken, 2009. "Temperature and Income: Reconciling New Cross-Sectional and Panel Estimates," American Economic Review, American Economic Association, vol. 99(2), pages 198-204, May.
    6. Joshua Graff Zivin & Matthew Neidell, 2014. "Temperature and the Allocation of Time: Implications for Climate Change," Journal of Labor Economics, University of Chicago Press, vol. 32(1), pages 1-26.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Climate Change; GDP; Panel VAR; Temperature;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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