- Category: Business
08 Aug 2012
- Published on Wednesday, 08 August 2012 11:36
- Hits (710)
Rises in local temperatures, even temporary, damage long-term economic growth significantly in the world's developing nations, according to a study published in “American Economic Journal: Macroeconomics.”
Basing on weather data over the last half-century, the study finds that for every 1-degree-Celsius increase in a poor country over the course of a given year, its economic growth reduces by about 1.3 percentage points.
"Higher temperatures lead to substantially lower economic growth in poor countries," says Ben Olken, co-author and professor of economics at the Massachusetts Institute of Technology.
While it is a given that droughts and hot weather could hurt agriculture, the study indicates that hot spells have much wider economic effects, specifically affecting investment, political stability and industrial output.
The findings, however, indicate that this only applies to the world's developing nations, and that wealthier countries do not appear to be affected by the variations in temperature.
Starting as a working paper in 2008, the study collected temperature and economic output data for each country in the world in every year from 1950 through 2003. The relationships between them were later analyzed.
It was found that there are a variety of "channels" through which weather shocks hurt economic production – when economic data is looked at by type of activity, not just aggregate output – by slowing down workers, commerce, and even capital investment.
"If you think about people working in factories on a 105-degree day with no air conditioning, you can see how it makes a difference," Mr. Olken says.
Another consequence found was that higher temperatures in a given year would affect not only a country's economic activity at the time, but its growth prospects far into the future.
Politically, it is found that temperature shocks are associated with an increase in political instability, as a 1-degree-Celsius rise in a given year raises the probability of "irregular leader transitions," such as coups, by 3.1 percentage points in poor countries. - EcoSeed Staff