IDEAS home Printed from https://ideas.repec.org/a/eee/resene/v27y2005i1p1-17.html
   My bibliography  Save this article

On climate change and economic growth

Author

Listed:
  • Fankhauser, Samuel
  • S.J. Tol, Richard

Abstract

The economic impact of climate change is usually measured as the amount by which the climate of a given period will affect output or GDP in that period. This paper draws attention to some of the dynamic effects through which climate change may affect economic growth and hence future output. In particular, the paper looks at saving and capital accumulation. With a constant savings rate, a lower output due to climate change will lead to a proportionate reduction in investment which in turn will depress future production (capital accumulation effect). If the savings rate is flexible, forward looking agents may change their savings behavior to accommodate the impact of future climate change. Again this alters growth prospects (savings effect). In an endogenous growth context, the two effects may be exacerbated through changes in labour productivity and the rate of technical progress. Simulations using a simple climate-economy model suggest that the capital accumulation effect is important, especially if growth is endogenous, and may be larger than the direct impact of climate change. The savings effect is less pronounced and its sign is ambiguous. In most cases, the savings effect is negative, that is, faced with climate change households increase current consumption rather than saving more to compensate for future damages. The indirect effects are relatively larger for smaller direct effects; the indirect effects are also relatively larger for growth mechanisms more prevalent in richer countries. Ignoring the growth effects of climate change thus leads to a substantial underestimate of the impacts of climate change, particularly in richer economies.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Fankhauser, Samuel & S.J. Tol, Richard, 2005. "On climate change and economic growth," Resource and Energy Economics, Elsevier, vol. 27(1), pages 1-17, January.
    • Handle: RePEc:eee:resene:v:27:y:2005:i:1:p:1-17
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0928-7655(04)00033-8
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Fankhauser, Samuel & Smith, Joel B. & Tol, Richard S. J., 1999. "Weathering climate change: some simple rules to guide adaptation decisions," Ecological Economics, Elsevier, vol. 30(1), pages 67-78, July.
    2. Funke, Michael & Strulik, Holger, 2000. "On endogenous growth with physical capital, human capital and product variety," European Economic Review, Elsevier, vol. 44(3), pages 491-515, March.
    3. Masters, William A & McMillan, Margaret S, 2001. "Climate and Scale in Economic Growth," Journal of Economic Growth, Springer, vol. 6(3), pages 167-186, September.
    4. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
    5. Richard S. J. Tol, 1999. "The Marginal Costs of Greenhouse Gas Emissions," The Energy Journal, , vol. 20(1), pages 61-81, January.
    6. Nordhaus, William D, 1991. "To Slow or Not to Slow: The Economics of the Greenhouse Effect," Economic Journal, Royal Economic Society, vol. 101(407), pages 920-937, July.
    7. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    8. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
    9. John Luke Gallup & Jeffrey D. Sachs & Andrew Mellinger, 1999. "Geography and Economic Development," CID Working Papers 01A, Center for International Development at Harvard University.
    10. Roy Darwin & Richard Tol, 2001. "Estimates of the Economic Effects of Sea Level Rise," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 19(2), pages 113-129, June.
    11. Stephen C Peck & Thomas J. Teisberg, 1992. "CETA: A Model for Carbon Emissions Trajectory Assessment," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 55-78.
    12. Tol, Richard S. J., 1994. "The damage costs of climate change: a note on tangibles and intangibles, applied to DICE," Energy Policy, Elsevier, vol. 22(5), pages 436-438, May.
    13. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
    14. Gallup, John & Sachs, Jeffrey, 1999. "Geography and Economic Development," Harvard Institute for International Development (HIID) Papers 294434, Harvard University, Kennedy School of Government.
    15. Gallup, J.L. & Sachs, J.D. & Mullinger, A., 1999. "Geography and Economic Development," Papers 1, Chicago - Graduate School of Business.
    16. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(2), pages 407-437.
    17. William R. Cline, 1992. "Economics of Global Warming, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 39, April.
    18. Hartwick, John M, 1977. "Intergenerational Equity and the Investing of Rents from Exhaustible Resources," American Economic Review, American Economic Association, vol. 67(5), pages 972-974, December.
    19. John Luke Gallup & Jeffrey D. Sachs & Andrew Mellinger, 1999. "Geography and Economic Development," CID Working Papers 1, Center for International Development at Harvard University.
    20. Pearce, David W. & Atkinson, Giles D., 1993. "Capital theory and the measurement of sustainable development: an indicator of "weak" sustainability," Ecological Economics, Elsevier, vol. 8(2), pages 103-108, October.
    21. Gallup, John L. & Sachs, Jeffrey D. & Mellinger, Andrew, "undated". "Geography and Economic Development," Instructional Stata datasets for econometrics geodata, Boston College Department of Economics.
    22. Jinxia Wang & Robert Mendelsohn & Ariel Dinar & Jikun Huang & Scott Rozelle & Lijuan Zhang, 2009. "The impact of climate change on China's agriculture," Agricultural Economics, International Association of Agricultural Economists, vol. 40(3), pages 323-337, May.
    23. Richard S.J. Tol & Samuel Fankhauser & Richard G. Richels & Joel B. Smith, 2000. "How Much Damage Will Climate Change Do? Recent Estimates," Working Papers FNU-2, Research unit Sustainability and Global Change, Hamburg University, revised Sep 2000.
    24. Richard S.J. Tol & Samuel Fankhauser & Richard G. Richels & Joel B. Smith, 2000. "How Much Damage Will Climate Change Do?," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 1(4), pages 179-206, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Richard S J Tol, 2018. "The Economic Impacts of Climate Change," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 12(1), pages 4-25.
    2. Richard S. J. Tol, 2009. "The Economic Effects of Climate Change," Journal of Economic Perspectives, American Economic Association, vol. 23(2), pages 29-51, Spring.
    3. Fagerberg, Jan & Srholec, Martin & Verspagen, Bart, 2010. "Innovation and Economic Development," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 2, chapter 0, pages 833-872, Elsevier.
    4. Fagerberg, Jan & Srholec, Martin & Knell, Mark, 2007. "The Competitiveness of Nations: Why Some Countries Prosper While Others Fall Behind," World Development, Elsevier, vol. 35(10), pages 1595-1620, October.
    5. Oleg Badunenko & Daniel Henderson & Romain Houssa, 2014. "Significant drivers of growth in Africa," Journal of Productivity Analysis, Springer, vol. 42(3), pages 339-354, December.
    6. Rodríguez-Pose, Andrés & Ketterer, Tobias, 2016. "Institutions vs. ‘First-Nature’ Geography – What Drives Economic Growth in Europe’s Regions?," CEPR Discussion Papers 11322, C.E.P.R. Discussion Papers.
    7. Dalgaard, Carl-Johan & Strulik, Holger, 2013. "The history augmented Solow model," European Economic Review, Elsevier, vol. 63(C), pages 134-149.
    8. Jan Fagerberg & Martin Srholec, 2005. "Catching up: What are the Critical Factors for success?," Working Papers on Innovation Studies 20050401, Centre for Technology, Innovation and Culture, University of Oslo.
    9. W. A. Naudé, 2004. "The effects of policy, institutions and geography on economic growth in Africa: an econometric study based on cross-section and panel data," Journal of International Development, John Wiley & Sons, Ltd., vol. 16(6), pages 821-849.
    10. Artelaris, Panagiotis & Arvanitidis, Paschalis & Petrakos, George, 2006. "Theoretical and Methodological Study on Dynamic Growth Regions and Factors Explaining their Growth Performance," Papers DYNREG02, Economic and Social Research Institute (ESRI).
    11. Stimpfle, Alexander & Stadelmann, David, 2015. "The Impact of Fundamental Development Factors on Different Income Groups: International Evidence," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113128, Verein für Socialpolitik / German Economic Association.
    12. Carl-Johan Dalgaard & Henrik Hansen & Finn Tarp, 2004. "On The Empirics of Foreign Aid and Growth," Economic Journal, Royal Economic Society, vol. 114(496), pages 191-216, June.
    13. Jan Fagerberg, 2010. "The Changing Global Economic Landscape: The Factors that Matter," Chapters, in: Robert M. Solow & Jean-Philippe Touffut (ed.), The Shape of the Division of Labour, chapter 1, Edward Elgar Publishing.
    14. Arvanitidis, Paschalis & Petrakos, George & Pavleas, Sotiris, 2007. "Determinants of economic growth: the experts’ view," Papers DYNREG20, Economic and Social Research Institute (ESRI).
    15. Fidel Perez-Sebastian, 2012. "Understanding R&D Policy: Efficiency or Politics?," Review of Economics and Institutions, Università di Perugia, vol. 3(3).
    16. repec:pst:wpaper:320 is not listed on IDEAS
    17. Sadik, Jacques, 2008. "Technology adoption, convergence, and divergence," European Economic Review, Elsevier, vol. 52(2), pages 338-355, February.
    18. Canavire-Bacarreza, Gustavo & Martinez-Vazquez, Jorge & Yedgenov, Bauyrzhan, 2020. "Identifying and disentangling the impact of fiscal decentralization on economic growth," World Development, Elsevier, vol. 127(C).
    19. Thomas Andersen & Carl-Johan Dalgaard, 2011. "Flows of people, flows of ideas, and the inequality of nations," Journal of Economic Growth, Springer, vol. 16(1), pages 1-32, March.
    20. Tobias D. Ketterer & Andrés Rodríguez‐Pose, 2018. "Institutions vs. ‘first‐nature’ geography: What drives economic growth in Europe's regions?," Papers in Regional Science, Wiley Blackwell, vol. 97(S1), pages 25-62, March.
    21. Fagerberg, Jan & Srholec, Martin, 2008. "National innovation systems, capabilities and economic development," Research Policy, Elsevier, vol. 37(9), pages 1417-1435, October.

    More about this item

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:resene:v:27:y:2005:i:1:p:1-17. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505569 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.