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Temperature and Production Efficiency Growth: Empirical Evidence

Author

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  • Surender Kumar

    (Department of Economics, Delhi School of Economics)

  • Madhu Khanna

    (Department of Agricultural and Consumer Economics, University of Illinois, Urbana-Champaign 1301, W. Gregory Drive, Urbana, IL 61801)

Abstract

This paper examines the marginal effects of temperature on the growth rate and variability in growth rate of Total Factor Productivity (TFP) of a country, as measured by its production efficiency relative to a stochastic frontier. Using panel data for 168 countries for the period 1950-2014 to estimate a one-step stochastic frontier function, we find that temperature has a concave relationship with the growth rate of production efficiency and with the variability in this growth rate. We observe that hotter than the average temperature is not only detrimental to production efficiency growth but also makes the growth less stable than otherwise and these effects are larger in very hot countries with average annual temperature greater than 25 oC. More importantly, we observe that the detrimental marginal effects of higher temperature depend on the level of economic development of a country they are larger for poor countries relative to rich countries. Our findings have implications for the specification of climate damage functions in integrated assessment models and estimates of country-specific social cost of carbon.

Suggested Citation

  • Surender Kumar & Madhu Khanna, 2019. "Temperature and Production Efficiency Growth: Empirical Evidence," Working papers 298, Centre for Development Economics, Delhi School of Economics.
  • Handle: RePEc:cde:cdewps:298
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    Cited by:

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    2. Richard S.J. Tol, 2020. "The Economic Impact of Weather and Climate," Video Library 2094, Department of Economics, University of Sussex Business School.
    3. Gagliardi, Nicola & Grinza, Elena & Rycx, François, 2024. "The Productivity Impact of Global Warming: Firm-Level Evidence for Europe," GLO Discussion Paper Series 1485, Global Labor Organization (GLO).
    4. Chang, Jun-Jie & Mi, Zhifu & Wei, Yi-Ming, 2023. "Temperature and GDP: A review of climate econometrics analysis," Structural Change and Economic Dynamics, Elsevier, vol. 66(C), pages 383-392.
    5. Chen, Bowen & Dennis, Elliott J. & Featherstone, Allen, 2022. "Weather Impacts the Agricultural Production Efficiency of Wheat: The Emerging Role of Precipitation Shocks," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 47(3), September.
    6. Chen, Xinming & Fang, Tong, 2024. "Temperature anomalies and foreign direct investment: City-level evidence from China," International Review of Financial Analysis, Elsevier, vol. 91(C).
    7. Wang, Hai-jie & Tang, Kai, 2023. "Extreme climate, innovative ability and energy efficiency," Energy Economics, Elsevier, vol. 120(C).
    8. He, Xin & Xu, Xinwei & Shen, Yu, 2023. "How climate change affects enterprise inventory management —— From the perspective of regional traffic," Journal of Business Research, Elsevier, vol. 162(C).
    9. Kumar, Naveen & Maiti, Dibyendu, 2024. "Long-run macroeconomic impact of climate change on total factor productivity — Evidence from emerging economies," Structural Change and Economic Dynamics, Elsevier, vol. 68(C), pages 204-223.
    10. Naveen Kumar & Dibyendu Maiti, 2024. "The Dynamic Causal Impact of Climate Change on Economic Activity - A Disaggregated Panel Analysis of India," Working papers 345, Centre for Development Economics, Delhi School of Economics.
    11. Xiaohui Chen & Wen Chen & Tao Hu & Bo Yang & Jianguang Zeng, 2023. "Regional carbon efficiency and corporate cash holdings: evidence from China," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-11, December.
    12. Somayeh Meyghani & Mahdi Khodaparast Mashhadi & Narges Salehnia, 2023. "Long-term effects of temperature and precipitation on economic growth of selected MENA region countries," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 25(7), pages 7325-7343, July.
    13. Rising, James A. & Taylor, Charlotte & Ives, Matthew C. & Ward, Robert E.T., 2022. "Challenges and innovations in the economic evaluation of the risks of climate change," Ecological Economics, Elsevier, vol. 197(C).
    14. Mingjuan Ma & Shuifa Ke & Qiang Li & Yaqi Wu, 2023. "Towards Carbon Neutrality: A Comprehensive Analysis on Total Factor Carbon Productivity of the Yellow River Basin, China," Sustainability, MDPI, vol. 15(8), pages 1-23, April.

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    More about this item

    Keywords

    Temperature; Production efficiency growth; Stochastic frontier analysis (SFA); Non-linear effects;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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