The macroeconomic cost of climate volatility

TL;DR

This paper examines how increasing climate volatility negatively impacts economic growth and stability across 133 countries from 1960 to 2019, highlighting significant macroeconomic costs.

Contribution

It provides empirical evidence linking rising climate volatility to reduced GDP growth and increased economic volatility, emphasizing global implications.

Findings

+1°C temperature volatility reduces GDP growth by 0.3%

Climate volatility increases GDP volatility by 0.7%

Impacts are observed across both rich and poor countries

Abstract

We study the impact of climate volatility on economic growth exploiting data on 133 countries between 1960 and 2019. We show that the conditional (ex ante) volatility of annual temperatures increased steadily over time, rendering climate conditions less predictable across countries, with important implications for growth. Controlling for concomitant changes in temperatures, a +1 degree C increase in temperature volatility causes on average a 0.3 percent decline in GDP growth and a 0.7 percent increase in the volatility of GDP. Unlike changes in average temperatures, changes in temperature volatility affect both rich and poor countries.