Chapter 7: The Economic Impact of Weather and Climate

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 than the weather effect.

Keywords: Climate change, D24, economic growth, error-correction model,O44, O47, Q54, stochastic frontier analysis, weather shocks