climate, change, and development

Dynamic impacts

• The problem– Sources– Mechanisms– Possible futures– Consequences

• The solution

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Wel

fare

-equ

ival

ent i

ncom

e ch

ange

(in

perc

ent)

Global warming (in degrees centrigrade)

Climate change and growth• Climate change can affect welfare

through four channels– Utility (e.g., species loss)– Labour (e.g., morbidity)– Output per worker (e.g., agricultural

productivity)– Depreciation (e.g., floods)

• Utility: no impact• If output is lower in period t, less is

consumed and less is saved, so that there is less capital and less output in period t+1

• Ditto for higher depreciation

Climate change and growth -2• In principle, people could compensate

through increased savings– Not rational as would cut consumption even

more– Besides, the returns to capital have fallen

• If the labour force shrinks, there is more capital per worker, higher labour productivity, higher wages– The rational response is to consume the

windfall, save less, until the capital-labour ratio is back at its desired value

– Effect is small as the health impacts of climate change primarily fall on the non-working population

Climate and poverty• Cool countries tend to be rich, hot

countries tend to be poor

0

10,000

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50,000

60,000

-10 -5 0 5 10 15 20 25 30

Inco

me

(dol

lar (

MER

) per

per

son

per y

ear)

, 200

0

Annual temperature (degree Celsius), 1961-1990

0

5,000

10,000

15,000

20,000

25,000

30,000

-10 -5 0 5 10 15 20 25 30

Inco

me

(dol

lar (

PPP)

per

per

son

per y

ear)

, 200

0


0

1,000

2,000

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6,000

7,000

-10 -5 0 5 10 15 20 25 30

Inco

me

(dol

lar (

PPP)

per

per

son

per y

ear)

, 190

0


0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

-10 -5 0 5 10 15 20 25 30

Inco

me

(dol

lar (

PPP)

per

per

son

per y

ear)

, 182

0


0

500

1,000

1,500

2,000

2,500

3,000

3,500

-10 -5 0 5 10 15 20 25 30

Inco

me

(dol

lar (

PPP)

per

per

son

per y

ear)

, 170

0


0

500

1,000

1,500

2,000

2,500

3,000

3,500

-10 -5 0 5 10 15 20 25 30

Inco

me

(dol

lar (

PPP)

per

per

son

per y

ear)

, 160

0


0

500

1,000

1,500

2,000

2,500

3,000

-10 -5 0 5 10 15 20 25 30

Inco

me

(dol

lar (

PPP)

per

per

son

per y

ear)

, 150

0



countries tend to be poor• Correlation sure, but causation?

Dell, Jones, Olken, 2009, AER

Dell,

Jone

s, Ol

ken,

201

2, A

EJ M

acro


countries tend to be poor• Correlation sure, but causation?• Diamond: Climate and geography are

destiny

Olsson, Hibbs, 2005, EER



destiny• Sachs: Climate and geography are

important

Barrios, Bertinelli, Strobl, 2010, REStat




important• Acemoglu: Climate and geography were

important• Easterly: Climate and geography are not

important and were never

Acem

oglu

, Joh

nson

, Rob

inso

n, 2

001,

AER




important• Acemoglu: Climate and geography were

important• Easterly, Rodrik: Climate and geography

helped to shape institutions, but nowadays institutions rule

Poverty traps?• If infant mortality is high (and it is in hot

and wet climes), parents would have many children to ensure that at least a few survive. Risk-average parents would have more children than they want. Parents could not afford health care and education. Children grow up to be poor too.

• If there is a risk of losing it all (and there is in volatile climes), there is no point in saving for the future. A feast and famine culture gets engrained. Also steers investment in non-perishables, such as education.

Climate change and poverty• Climate change could intensify such

mechanisms.• This would be an enormous welfare loss.• However, this is still speculative – and it

clear that there is no ground for fatalism– Cultures change– Infectious disease is treatable and

preventable

climate, change, and development

Education