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Global temperature, R&D expenditure, and growth

Author

Listed:
  • Michael Donadelli

    (Faculty of Economics and Business Administration and Research Center SAFE, Goethe University Frankfurt)

  • Patrick Grüning

    (Center for Excellence in Finance and Economic Research (CEFER), Bank of Lithuania, and Faculty of Economics and Business Administration, Vilnius University)

  • Marcus Jüppner

    (Deutsche Bundesbank, and Faculty of Economics and Business Administration, Goethe University Frankfurt)

  • Renatas Kizys

    (Faculty of Business and Law, University of Portsmouth)

Abstract

We shed new light on the macroeconomic effects of rising temperatures. In the data, a shock to global temperature dampens research and development (R&D) expenditure growth. This novel empirical evidence is rationalised within a stochastic endogenous growth model. In the model, Temperature shocks undermine economic growth via a drop in R&D. Moreover, temperature risk generates welfare costs of 13.50% of lifetime utility. The government can offset these welfare costs by subsidizing investment with 1.02% or R&D expenditure with 0.52% of total public spending, respectively. Alternatively, it can levy a lump-sum tax on households which finances 0.64% of total public spending.

Suggested Citation

  • Michael Donadelli & Patrick Grüning & Marcus Jüppner & Renatas Kizys, 2018. "Global temperature, R&D expenditure, and growth," Bank of Lithuania Discussion Paper Series 9, Bank of Lithuania.
    • Handle: RePEc:lie:dpaper:9
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    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q00 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - General

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