The economic impact of weather and climate

TL;DR

This paper introduces a new model to analyze how weather and climate influence economic activity, revealing that climate has a larger impact than short-term weather variations across different countries.

Contribution

It develops a stochastic frontier framework to separate climate and weather effects on economic growth, tested on 160 countries from 1950 to 2014.

Findings

Temperature and rainfall affect production in both rich and poor countries.

Weather anomalies impact inefficiency differently based on country wealth and climate.

Climate effects surpass weather effects in magnitude.

Abstract

I propose a new conceptual framework to disentangle the impacts of weather and climate on economic activity and growth: A stochastic frontier model with climate in the production frontier and weather shocks as a source of inefficiency. I test it on a sample of 160 countries over the period 1950-2014. Temperature and rainfall determine production possibilities in both rich and poor countries; positively in cold countries and negatively in hot ones. Weather anomalies reduce inefficiency in rich countries but increase inefficiency in poor and hot countries; and more so in countries with low weather variability. The climate effect is larger that the weather effect.