Global warming, and rate effects vs. level effects

 [[{“value”:”There is a very interesting new paper on this topic byIshan B. Nath, Valerie A. Ramey, and Peter J. Kleinow.  Here is the abstract: Does a permanent rise in temperature decrease the level or growth rate of GDP in affected countries? Differing answers to this question lead prominent estimates of climate damages to diverge by
The post Global warming, and rate effects vs. level effects appeared first on Marginal REVOLUTION.”}]] 

There is a very interesting new paper on this topic byIshan B. Nath, Valerie A. Ramey, and Peter J. Kleinow.  Here is the abstract:

Does a permanent rise in temperature decrease the level or growth rate of GDP in affected countries? Differing answers to this question lead prominent estimates of climate damages to diverge by an order of magnitude. This paper combines indirect evidence on economic growth with new empirical estimates of the dynamic effects of temperature on GDP to argue that warming has persistent, but not permanent, effects on growth. We start by presenting a range of evidence that technology flows tether country growth rates together, preventing temperature changes from causing growth rates to diverge permanently. We then use data from a panel of countries to show that temperature shocks have large and persistent effects on GDP, driven in part by persistence in temperature itself. These estimates imply projected future impacts that are three to five times larger than level effect estimates and two to four times smaller than permanent growth effect estimates, with larger discrepancies for initially hot and cold countries.

Here is one key part of the intuition:

We present a range of evidence that global growth is tied together across countries, which suggests that country-specific shocks are unlikely to cause permanent changes in country-level growth rates…Relatedly, we find that differences in levels of income across countries persist strongly, while growth differences tend to be transitory.

Another way to make the point is that one’s model of the process should be consistent with a pre-carbon explosion model of income differences (have you ever seen those media articles about how heat from climate change supposedly is making us stupider, with no thought as to further possible implications of that result?  Mood affiliation at work there, of course).

After the authors go through all of their final calculations, 3.7 degrees Centigrade of warming reduces global gdp by 7 to 12 percent by 2099, relative to no warming at all.  For sub-Saharan Africa, gdp falls by 21 percent, but for Europe gdp rises by 0.6 percent, again by 2099.

The authors also work through just how sensitive the results are to what is a level effect and what is a growth effect.  For instance, if a warmer Europe leads to a permanent growth-effect projection, Europe would see a near-doubling of income, compared to the no warming scenario.  The reduction in African gdp would be 88 percent, not just 21 percent.

By the way, the authors suggest the growth bliss point for a country (rat’ mal!) is thirteen degrees Centigrade.

This paper has many distinct moving parts, and thus it is difficult to pin down what is exactly the right answer, a point the authors stress rather than try to hide.  In any case it represents a major advance of thought in this very difficult area.

The post Global warming, and rate effects vs. level effects appeared first on Marginal REVOLUTION.

 Economics, Science, Uncategorized