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Weather, Climate and Total Factor Productivity

Author

Listed:
  • Marco Letta

    (Sapienza Università di Roma)

  • Richard S. J. Tol

    (University of Sussex
    Vrije Universiteit, Amsterdam
    Tinbergen Institute
    CESifo)

Abstract

Recently it has been hypothesized that climate change will affect total factor productivity growth. Given the importance of TFP for long-run economic growth, if true this would entail a substantial upward revision of current impact estimates. Using macro TFP data from a recently developed dataset in the Penn World Table, we test this hypothesis by directly examining the nature of the relationship between annual temperature shocks and TFP growth rates in the period 1960–2006. The results show a negative relationship only exists in poor countries, where a 1 °C annual increase in temperature decreases TFP growth rates by about 1.1–1.8 percentage points, whereas the impact is indistinguishable from zero in rich countries. Extrapolating from weather to climate, the possibility of dynamic effects of climate change in poor countries increases concerns over the distributional issues of future impacts and, from a policy perspective, restates the case for complementarity between climate policy and poverty reduction.

Suggested Citation

  • Marco Letta & Richard S. J. Tol, 2019. "Weather, Climate and Total Factor Productivity," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 73(1), pages 283-305, May.
  • Handle: RePEc:kap:enreec:v:73:y:2019:i:1:d:10.1007_s10640-018-0262-8
    DOI: 10.1007/s10640-018-0262-8
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    More about this item

    Keywords

    Weather variability; Climate change; Total factor productivity; Economic growth;
    All these keywords.

    JEL classification:

    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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