Global warming is expected to make the climate warmer, wetter, and wilder. It is predicted that such climate change will increase the severity and frequency of climate-related disasters like flash floods, surges, cyclones and severe storms. This article uses econometric methods to study the consequences of climate-induced natural disasters on economic growth, and how these disasters are linked to the onset of armed civil conflict either directly or via their impact on economic growth. The results show that climate-related natural disasters have a negative effect on growth and that the impact is considerable. The analysis of conflict onset shows that climate-related natural disasters do not increase the risk of armed conflict. This is also true when we instrument the change in GDP growth by climatic disasters. The result is robust to inclusion of country and time fixed effects, different estimation techniques, various operationalization of the disasters measure as well as for conflict incidence and war onset. These findings have two major implications: if climate change increases the frequency or make weather-related natural disasters more severe, it is an economic concern for countries susceptible to these types of hazards. However, our results suggest-based on historical data-that more frequent and severe climate-related disasters will not lead to more armed conflicts through their effects on GDP growth.
BIS Working Papers are written by members of the Monetary and Economic Department of the Bank for International Settlements, and from time to time by other economists, and are published by the Bank. The papers are on subjects of topical interest and are technical in character. The views expressed in them are those of their authors and not necessarily the views of the BIS. This publication is available on the BIS website (www.bis.org).
We use time series techniques to estimate the importance of four main explanations for the decline of the US labor income share: rising firm markups, falling bargaining power of workers, higher investment-specific technology growth, and more automated production processes. Identification is achieved with restrictions derived from a stylized model of structural change. Our results point to automation as the main driver of the labor share, although rising markups have played an important role in the last 20 years. We also find evidence of capital-labor complementarity, suggesting that capital deepening may have raised the labor share. (JEL D21, D43, E25, J51, L23, O33, O41)
Existing DSGE models are not able to reproduce the observed influence of international business cycles on small open economies. We construct a two-sector New Keynesian model to address this puzzle. The setup takes into account intermediate trade and producer heterogeneity, where goods and service industries differ in terms of i) price flexibility, ii) trade intensity, iii) technology, iv) I-O structure, and v) the volatility of productivity innovations. The combination of intermediate markets and heterogeneous producers makes international business cycles highly important for the small economy, even if it has a large service sector. Exploiting I-O matrices of Canadian and US industries, the model is able to reproduce the role of international disturbances typically found in empirical studies. Model simulations deliver crosscountry correlations in macroeconomic variables of about 0.7, with half of the variation in domestic variables attributed to foreign shocks.
The recent oil price fall has created concern among policy makers regarding the consequences of terms of trade shocks for resource-rich countries. This concern is not a minor one-the world's commodity exporters combined are responsible for 15-20% of global value added. We estimate a two-country New Keynesian model in order to quantify the importance of oil price shocks for Norway-a large, prototype petroleum exporter. Domestic supply chains link mainland (non-oil) Norway to the offshore oil industry, while fiscal authorities accumulate income in a sovereign wealth fund. Oil prices and the international business cycle are jointly determined abroad. These features allow us to disentangle the structural sources of oil price fluctuations, and how they affect mainland Norway. The estimated model provides three important results: First, pass-through from oil prices to the oil exporter implies up to 20% higher business cycle volatility. Second, the majority of spillover effects stem from non-oil disturbances such as innovations in international investment efficiency. Conventional oil market shocks, in contrast, explain at most 10% of the Norwegian business cycle. Third, the prevailing fiscal regime provides substantial protection against external shocks while domestic supply linkages make the oil exporter more exposed. * This working paper should not be reported as representing the views of Norges Bank. The views expressed are those of the authors and do not necessarily reflect those of Norges Bank. We would like to thank Martín Uribe, Jordi Galí and Lars E. O. Svensson for helpful comments and discussions. We are also grateful for valuable input by discussants and participants in seminars and workshops hosted by the Bank for International Settlements, Deutsche Bundesbank, Banque de France, and Norges Bank. This work is part of the Norges Bank project Review of Flexible Inflation Targeting (ReFIT).
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