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Why Are Hotter Countries Poorer Countries?

Via Matt Yglesias, here's new economic research by Melissa Dell, Benjamin Jones, and Benjamin Olken on how climate change could potentially affect developing countries. The study begins with the question of why hotter countries tend to be poorer, and moves into the implications for global warming:

First, higher temperatures have large, negative effects on economic growth, but only in poor countries. In poor countries, we estimate that a 1C [1.8F] temperature increase in a given year reduced economic growth in that year by about 1.1 percentage points. In rich countries, changes in temperature had no discernable effect on growth. ...

For example, our estimates imply that global climate change would lower the median poor country’s growth rate by 0.6 percentage points each year from now until 2099. Extrapolated over 90 years, the median poor country would then be about 40% poorer in 2099 than it would have been in the absence of climate change.

And this assumes that developing countries do everything possible to adapt to higher temperatures—an enormous task in its own right. What's more, the study doesn't dwell on the possibility that dwindling water supplies, agricultural losses, the spread of disease, and so forth could create conflict and destabilize certain parts of the world, as this CSIS report from 2007 details. To give just one unnerving example: Sea-level rises alone could wipe out as much as 38 percent of Pakistan's GDP, according to the World Bank.

Also note the study concludes that rich countries will escape largely unscathed. Is that actually true? Last month, the CBO studied this topic and estimated that a global temperature rise of 3.9C (7F) by 2100 would likely shrink U.S. GDP about 3 percent. But the CBO also notes that, according to the best climate modeling we have, we're on course for a bigger, 5C (9F) rise, with a one-in-six chance of a 14F rise. Few studies have grappled with the economic implications of those scenarios, in part because there are so many uncertainties involved.

Moreover, as the CBO notes, that 3 percent loss may seem modest, but it also obscures potentially much bigger losses in certain subsectors of the U.S. economy (say, the ski industry, or California agriculture), and it doesn't take into account non-market impacts of climate change—the negative effects that higher temperatures would have on human health, say, or the likely massive losses of biodiversity and natural habitats. In other words, it's not a completely safe assumption that Europe and the United States will make out just fine. (The CBO report, by the way, is a great primer on making policy under this sort of uncertainty.)

--Bradford Plumer