Poor countries feeling the heat much more than rich nations
By Summit Voice
SUMMIT COUNTY — In an ominous sign for an ever-warming world, scientists recently calculated that even small temperature bumps can result in huge additional economic costs.
The research paper, co-authored by MIT economist Ben Olken, concluded the biggest impacts are in the developing world, where every 1-degree-Celsius increase in poor country, over the course of a given year, reduces its economic growth by about 1.3 percentage points. Wealthier countries do not appear to be affected by the variations in temperature, according to the study.
“Higher temperatures lead to substantially lower economic growth in poor countries,”Olken said.
And while it’s relatively straightforward to see how droughts and hot weather might hurt agriculture, the study indicates that hot spells have much wider economic effects.
“What we’re suggesting is that it’s much broader than [agriculture],” Olken said. “It affects investment, political stability and industrial output.”
The study first gained public attention as a working paper in 2008. It collects temperature and economic-output data for each country in the world, in every year from 1950 through 2003, and analyzes the relationship between them.
“We couldn’t believe no one had done it before, but we weren’t really sure we’d find anything at all,” Olken said.
By looking at economic data by type of activity, not just aggregate output, the researchers concluded there are a variety of “channels” through which weather shocks hurt economic production — by slowing down workers, commerce, and perhaps 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,” Olken says.
The researchers also integrated data about forms of government into the study, and found that temperature shocks are associated with an increase in political instability.
A 1-degree-Celsius rise in a given year, they found, raises the probability of “irregular leader transitions,” such as coups, by 3.1 percentage points in poor countries. In turn, the authors wrote, “poor economic performance and political instability are likely mutually reinforcing.”
“The impacts of these things are going to be worse for the countries that have the least ability to adapt to it,” Olken said. “[We] want to think that through for the implications for future inequality. It’s a double whammy.”
The paper, “Temperature Shocks and Economic Growth: Evidence from the Last Half Century,” was published this summer in the American Economic Journal: Macroeconomics. Along with Olken, the authors are Melissa Dell PhD ’12, of Harvard University, who was a PhD candidate in MIT’s Department of Economics when the paper was produced, and Ben Jones PhD ’03, an economist at Northwestern University.