The Long-Lived Effects of Historic Climate on the Wealth of Nations

Although a reduced-form approach allows us to recover robust, general patterns in the relationship, it does not allow us to resolve the exact mechanism by which historic temperature affects current incomes. To shed some light on the mechanism we build a simple model of growth of physical and human capital to investigate how much income difference a temperature shock can generate over 150 years. To calibrate the growth effect of temperature shocks we use result from Dell, Jones, and Olken (2008) who estimated the contemporaneous growth effect climate shocks on post 1950 data. The calibrated model generates roughly the same size of income difference over a period of 150 years what we estimated using historical temperature data.