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The Food Problem and the Aggregate Productivity Consequences of Climate Change

Author

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  • Ishan B. Nath
Abstract
This paper integrates local temperature treatment effects and a quantitative macroeconomic model to evaluate the impact of climate change on sectoral reallocation and aggregate productivity. First, I use firm-level data from a wide range of countries to estimate the effect of temperature on productivity in manufacturing and services. Estimates suggest that extreme heat reduces non-agricultural productivity, but less so than in agriculture, implying that hot countries could adapt to climate change by importing food and shifting labor toward manufacturing. Second, I embed my estimates in an open-economy model of structural transformation covering 158 countries to investigate this possibility. Simulations suggest that subsistence food requirements drive agricultural specialization more than comparative advantage, however, such that climate change perversely pulls labor into agriculture where its productivity suffers most and reallocation exacerbates the global decline in GDP. The productivity effects of climate change reduce welfare by 1.5-2.7% overall and 6-10% for the poorest quartile. Trade reduces the welfare costs of climate change by only 7.4% under existing policy, but by 31% overall and 68% for the global poor in a counterfactual scenario that assigns all countries the 90th percentile level of trade openness.

Suggested Citation

  • Ishan B. Nath, 2020. "The Food Problem and the Aggregate Productivity Consequences of Climate Change," NBER Working Papers 27297, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:27297
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    Cited by:

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    2. Rudik, Ivan & Lyn, Gary & Tan, Weiliang & Ortiz-Bobea, Ariel, 2021. "Heterogeneity and Market Adaptation to Climate Change in Dynamic-Spatial Equilibrium," SocArXiv usghb, Center for Open Science.
    3. Casey, Gregory & Fried, Stephie & Gibson, Matthew, 2024. "Understanding climate damages: Consumption versus investment," European Economic Review, Elsevier, vol. 167(C).
    4. Gerling, Charlotte & Schöttker, Oliver & Hearne, John, 2022. "Keep it or Leave it - the Role of Reversible Conservation Investments in Optimal Reserve Design under Climate Change," VfS Annual Conference 2022 (Basel): Big Data in Economics 264058, Verein für Socialpolitik / German Economic Association.
    5. José-Luis Cruz & Esteban Rossi-Hansberg, 2024. "The Economic Geography of Global Warming," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 91(2), pages 899-939.
    6. Tarsia, Romano, 2024. "Heterogeneous effects of weather shocks on firm economic performance," LSE Research Online Documents on Economics 124251, London School of Economics and Political Science, LSE Library.
    7. Sylvain Leduc & Daniel J. Wilson, 2023. "Climate Change and the Geography of the U.S. Economy," Working Paper Series 2023-17, Federal Reserve Bank of San Francisco.
    8. Lint Barrage, 2023. "Fiscal Costs of Climate Change in the United States," CER-ETH Economics working paper series 23/380, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    9. Per Krusell & Tony Smith, 2022. "Climate Change Around the World," Cowles Foundation Discussion Papers 2342, Cowles Foundation for Research in Economics, Yale University.
    10. Rudik, Ivan & Lyn, Gary & Tan, Weiliang & Ortiz-Bobea, Ariel, 2022. "The Economic Effects of Climate Change in Dynamic Spatial Equilibrium," Conference papers 333486, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    11. repec:ags:aaea22:335724 is not listed on IDEAS
    12. Gerling, Charlotte & Schöttker, Oliver & Hearne, John, 2022. "Irreversible and partly reversible investments in the optimal reserve design problem: the role of flexibility under climate change," MPRA Paper 112089, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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