Temperature and Growth: A Panel Analysis of the United States

Abstract

We document that seasonal temperatures have significant and systematic effects on the U.S. economy, both at the aggregate level and across a wide cross section of economic sectors. This effect is particularly strong for the summer: a 1 o F increase in the average summer temperature is associated with a reduction in the annual growth rate of state-level output of 0.15 to 0.25 percentage points. We combine our estimates with projected increases in seasonal temperatures and find that rising temperatures could reduce U.S. economic growth by up to one-third over the next century.JEL codes: O44, Q51, Q59, R11

Rapidly declining remarkability of temperature anomalies may obscure public perception of climate change

“…In both cases, more extreme temperatures (i.e., cold anomalies at cold temperatures and hot anomalies at hot temperatures) are more remarkable than reference temperatures. These extreme temperatures have been shown to be socially consequential along several dimensions, including mortality risk, emotional state and mental health, and economic productivity (20)(21)(22)(23). It is therefore perhaps unsurprising that they should generate more comment than more typical and less consequential temperatures.…”

Estimating the Consequences of Climate Change from Variation in Weather

“…We now consider the possibility of recovering effects on payoffs from observations of payoffs and weather. For instance, empirical research studies how variation in weather affects agricultural profits (e.g., Deschênes and Greenstone, 2007) or affects macroeconomic variables such as gross output or income that are potentially related to payoffs (e.g., Dell et al, 2012;Burke et al, 2015;Deryugina and Hsiang, 2017;Colacito et al, 2019). The class of payoff functions defined by the following assumption will yield especially interesting results:…”

Can Variations in Temperature Explain the Systemic Risk of European Firms?

“…Rising global temperature can have an impact on the economy and activate macroeconomic alterations. Fankhauser and Tol (2005), Stern (2007), Du et al (2017), Colacito et al (2018) argue that climate change will have a direct effect on countries' GDP due to the fact that they have to bear the consequences of extreme weather events, such as rainstorms, extreme temperatures and floods. Having quantified this effect, Horowitz (2009) documents that 1 • C increase in average temperature would decrease the world GDP by 3.8%.…”

“…Notwithstanding the use of lower frequency temperature data in the climate-economy literature (Hsiang 2010;Dell et al 2012;Du et al 2017;Colacito et al 2018), while climate-finance studies tend to use higher frequency data (Kamstra et al 2003;Cao and Wei 2005;Apergis and Gupta 2017). This can be explained by the unavailability of higher frequency macroeconomic and, sometimes, temperature data (particularly in developing countries) as well as, there are conceptually different research objectives between economists and finance scholars.…”

“…A critical issue is the frequency of the data. In the climate-economy literature, temperature is commonly approximated with low frequency data (monthly, quarterly, annually) (Colacito et al 2018); this is because climate change is a long term phenomenon which systematically affects macroeconomic conditions (e.g. Dell et al 2014).…”