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Global Economic Impacts of Physical Climate Risks

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  • Caterina Lepore
  • Roshen Fernando

Abstract

This paper evaluates the global economic consequences of physical climate risks under two Shared Socioeconomic Pathways (SSP 1-2.6 and SSP 2-4.5) using firm-level evidence. Firstly, we estimate the historical sectoral productivity changes from chronic climate risks (gradual changes in temperature and precipitation) and extreme climate conditions (representative of heatwaves, coldwaves, droughts, and floods). Secondly, we produce forward-looking sectoral productivity changes for a global multisectoral sample of firms. For floods, these estimates account for the persistent productivity changes from the damage to firms’ physical capital. Thirdly, we assess the macroeconomic impact of these shocks within the global, multisectoral, intertemporal general equilibrium model: G-Cubed. The results indicate that, in the absence of additional adaptation relative to that already achieved by 2020, all the economies would experience substantial losses under the two climate scenarios and the losses would increase with global warming. The results can be useful for policymakers and practitioners interested in conducting climate risk analysis.

Suggested Citation

  • Caterina Lepore & Roshen Fernando, 2023. "Global Economic Impacts of Physical Climate Risks," IMF Working Papers 2023/183, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2023/183
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    Cited by:

    1. Fahr, Stephan & Senner, Richard & Vismara, Andrea, 2024. "The globalization of climate change: amplification of climate-related physical risks through input-output linkages," Working Paper Series 2942, European Central Bank.

    More about this item

    Keywords

    climate risk analysis; capital markets department; climate risk; physical capital; productivity change; Climate change; Productivity; Agricultural sector; Natural disasters; Global; North America; Western Europe; Europe;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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