Climate Change

Economic Consequences of Climate Change

Abstract

The economic impacts of climate change are inclined to assessing the impacts on agricultural production and productivity and on human health. The economic impacts of climate change however, go beyond these sectors. In this paper, we attempted to review the economic impacts of the change in the climate of the earth on some selected non-agricultural secondary and tertiary level of economic activities, especially in the light of the Stern Report, authored by Sir Nicholas Stern. The impacts on secondary and tertiary level of economic activities are wide and complex and eventually may be larger than on the impacts on agriculture for those middle and high-income countries where the share of agriculture in national GDP is low.

Table of Contents

Abstract1

Introduction3

Discussion3

Economic Consequences of Climate Change3

Impacts through Labour Productivity4

Indirect Impacts through Markets6

Stern Report and Why is climate change a market failure7

Some Selected Non-Agriculture Industries9

Conclusion11

References12

Economic Consequences of Climate Change

Introduction

Climate change is unequivocal. The change alters all sustainable development dimensions (i.e. economic, social, and environmental), and hence the potential development path ways for a given nation or region. It even is claimed that climate change is to be the "mother" of all problems to show its irreversible impacts. The set of mechanisms in which climate change affects economic and environmental outcomes are too vast and complex to investigate comprehensively. Therefore, it is intellectually daunting to deal with it.

In reality, however, the economic impacts of change in the earth climate go beyond the agriculture sector. For example, past literature found the impacts on (non-agricultural) industries and investment to be high and statistically significant on poor countries which eventually is associated with a 1.1% fall in economic growth in poor countries for each additional 1°C. Studies document a -2.2% production change in the transportation and communication sector for a unit of additional degree Celsius in 28 Caribbean and Latin American countries (R. M. Adams et al., 1998, pp. 19-30). Studies showed the positive correlation between climate shocks and export performance (T. Kjellstrom et al., 2009, pp. 217-227). Ignoring the production and productivity impacts of climate change on other economic sectors, therefore, will understate the economic impacts of climate change which in turn affects the mitigation and adaption responses.

Discussion

Economic Consequences of Climate Change

Studies which used annual variation in temperature and precipitation over 50 years (1950-2003) on 136 panel of world countries reported that there is deleterious effect by climate change on economic growth (in poor countries particularly) (Berrittella et al., 2006, 913-924).

Accordingly, there was significant loss in industrial output too. They found that +1°C increase in temperature reduces growth in poor countries (but not in rich countries) by 1.1 percentage points. The cumulative growth effects will even grow to -1.3% and -1.5% to -2.01% if we include one and three, five, or ten lagged temperature effects respectively. A 1°C higher temperature in poor countries is not only associated with 2.44 percentage points lower growth in industrial output but also with -3% growths in investment again in poor countries in addition to increased probability of ...