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Green Economics

Do Climate Shocks Make Poor Nations Poorer?

By Matthew E. KahnGuest Blogger / February 19, 2010

Traffic moves in the backdrop of smoke rising out of factory chimneys on the outskirts of Ahmadabad, India. In his upcoming book, blogger/author Matthew Kahn questions whether climate shocks effect poor nations negatively.

Ajit Solanki/AP

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Over the last two days, I have finished edits to my new book Climatopolis. Basic Books will publish it this fall. This is the third book that I have written and I can tell you that there is "learning by doing". While I'm no Richard Posner, I am starting to improve as a writer and perhaps blogging has helped? In my humble opinion, this book is smart and funny. At the tender age of 44, I know that I don't have that much productive time left so I'm getting ready to jump in and write out the notes that I have collected on my 4th book. Tsinghua University's Siqi Zheng and I will roll out a book about China's urban economic growth in late 2011.
My new book, Climatopolis, will be about how nations all over the world will cope with climate change. The technical economics literature on adaptation is just now starting. A fundamental challenge is that climate change will play out in the future --- so studying its future consequences poses a challenge for empiricists who like to crunch data.

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Economists have used historical climate variation to study how economies are affected by these climate shocks. Ben Olken and Ben Jones have a new NBER Working Paper that merits mentioning.

"This paper uses international trade data to examine the effects of climate shocks on economic activity. We examine panel models relating the annual growth rate of a country’s exports in a particular product category to the country’s weather in that year. We find that a poor country being 1 degree Celsius warmer in a given year reduces the growth rate of that country’s exports by between 2.0 and 5.7 percentage points, with no detectable effects in rich countries. We find negative effects of temperature on exports of both agricultural products and light manufacturing products, with little apparent effects on heavy
industry or raw materials. The results confirm large negative effects of temperature on poor countries’ economies and suggest that temperature affects a much wider range of economic activity than conventionally thought."

"Examining the negative and statistically significant categories, we find that the negative impacts of temperature seem to fall into two broad categories: agricultural products (e.g., cereals, dairy products and eggs, leather, feed stuff for animals) and light manufacturing (e.g., photo equipment, footwear, misc manufactured goods, electrical machinery, rubber manufactures, office machines, firearms, travel goods, plumbing, wood manufactures, metal manufactures). Heavy industry (e.g., chemicals, paper, cement, iron and steel, cars and trucks) and raw materialmining, petroleum, wood and pulp) seem generally unaffected. The explanation for agriculture seems clear (plants and animals may not thrive as well when it is too hot), and is consistent with negative effects on agriculture in poor countries reported elsewhere (e.g., DJO 2008, Raymond Guiteras 2009). The negative impacts on manufacturing are perhaps more surprising, and suggest that factory workers may be less productive when conditions inside the factory become too hot."

http://www.nber.org/papers/w15711.pdf

How did these talented young nerds detect this? Blog readers shouldn't have slept through their statistics classes. They collected national-yearly data on exports by industrial type and national data on climate conditions by year. By classifying nations into "rich and poor" they document that climate shocks (defined as deviations from typical national climate conditions) cause interesting exports dynamics for poorer nations.

This is interesting evidence that helps to paint a complete picture in thinking through the likely economic consequences of coming climate change.

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