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Weather, Climate and Total Factor Productivity

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  • 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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    Cited by:

    1. Letta, Marco & Montalbano, Pierluigi & Tol, Richard S.J., 2018. "Temperature shocks, short-term growth and poverty thresholds: Evidence from rural Tanzania," World Development, Elsevier, vol. 112(C), pages 13-32.
    2. Martin Henseler & Ingmar Schumacher, 2019. "The impact of weather on economic growth and its production factors," Climatic Change, Springer, vol. 154(3), pages 417-433, June.
    3. Cécile Couharde & Olivier Damette & Rémi Generoso & Kamiar Mohaddes, 2019. "The Growth Effects of El Niño and La Niña: Local Weather Conditions Matter," Globalization Institute Working Papers 374, Federal Reserve Bank of Dallas.
    4. Lomborg, Bjorn, 2020. "Welfare in the 21st century: Increasing development, reducing inequality, the impact of climate change, and the cost of climate policies," Technological Forecasting and Social Change, Elsevier, vol. 156(C).
    5. Marhanum Che Mohd Salleh & Mohammad Abdul Matin Chowdhury & Siti Salwani Razali & Nan Nurhidayu Megat Laksana, 2020. "Retirement Schemes, its Challenges and Ways of Reformation: A Cross-Border Study," International Journal of Asian Social Science, Asian Economic and Social Society, vol. 10(9), pages 507-520, September.
    6. Tol, Richard S.J., 2019. "A social cost of carbon for (almost) every country," Energy Economics, Elsevier, vol. 83(C), pages 555-566.
    7. Surender Kumar & Madhu Khanna, 2019. "Temperature and production efficiency growth: empirical evidence," Climatic Change, Springer, vol. 156(1), pages 209-229, September.
    8. Richard S.J. Tol, 2020. "The economic impact of climate in the long run," Working Paper Series 1120, Department of Economics, University of Sussex Business School.
    9. Wang, Ligang & Rao, Megha & Diethelm, Stefan & Lin, Tzu-En & Zhang, Hanfei & Hagen, Anke & Maréchal, François & Van herle, Jan, 2019. "Power-to-methane via co-electrolysis of H2O and CO2: The effects of pressurized operation and internal methanation," Applied Energy, Elsevier, vol. 250(C), pages 1432-1445.
    10. Aditi Singh & Shilpa Pal & D. P. Kanungo, 0. "An integrated approach for landslide susceptibility–vulnerability–risk assessment of building infrastructures in hilly regions of India," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 0, pages 1-38.
    11. Lei, Nuoa & Masanet, Eric, 2020. "Statistical analysis for predicting location-specific data center PUE and its improvement potential," Energy, Elsevier, vol. 201(C).
    12. Stefan Mittnik & Willi Semmler & Alexander Haider, 2020. "Climate Disaster Risks—Empirics and a Multi-Phase Dynamic Model," Econometrics, MDPI, Open Access Journal, vol. 8(3), pages 1-27, August.
    13. Tsigaris, Panagiotis & Wood, Joel, 2019. "The potential impacts of climate change on capital in the 21st century," Ecological Economics, Elsevier, vol. 162(C), pages 74-86.
    14. Lee, Dong-Young & Mehran, Muhammad Taqi & Kim, Jonghwan & Kim, Sangcho & Lee, Seung-Bok & Song, Rak-Hyun & Ko, Eun-Yong & Hong, Jong-Eun & Huh, Joo-Youl & Lim, Tak-Hyoung, 2020. "Scaling up syngas production with controllable H2/CO ratio in a highly efficient, compact, and durable solid oxide coelectrolysis cell unit-bundle," Applied Energy, Elsevier, vol. 257(C).
    15. Angenendt, Georg & Merten, Michael & Zurmühlen, Sebastian & Sauer, Dirk Uwe, 2020. "Evaluation of the effects of frequency restoration reserves market participation with photovoltaic battery energy storage systems and power-to-heat coupling," Applied Energy, Elsevier, vol. 260(C).
    16. Cécile Couharde & Olivier Damette & Rémi Generoso & Kamiar Mohaddes, 2019. "Reexamining the growth effects of ENSO: the role of local weather conditions," Working Papers of BETA 2019-27, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    17. Pollard, Ciarán P. & Griffin, Christine T. & Andrade Moral, Rafael de & Duffy, Catriona & Chuche, Julien & Gaffney, Michael T. & Fealy, Reamonn M. & Fealy, Rowan, 2020. "phenModel: A temperature-dependent phenology/voltinism model for a herbivorous insect incorporating facultative diapause and budburst," Ecological Modelling, Elsevier, vol. 416(C).
    18. Denitsa Angelova & Jan Käbel, 2019. "Weather Volatility and Production Efficiency," Sustainability, MDPI, Open Access Journal, vol. 11(24), pages 1-12, December.
    19. Vogt, Christine A. & Andereck, Kathleen L. & Pham, Kim, 2020. "Designing for quality of life and sustainability," Annals of Tourism Research, Elsevier, vol. 83(C).
    20. Panagiotis Tzouvanas & Renatas Kizys & Ioannis Chatziantoniou & Roza Sagitova, 2019. "Can Variations in Temperature Explain the Systemic Risk of European Firms?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(4), pages 1723-1759, December.

    More about this item

    Keywords

    Weather variability; Climate change; Total factor productivity; Economic growth;

    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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