FEEM working papers "Note di lavoro"
2021.04
Date: 2/3/2021

The economic impact of weather and climate


Authors:

Richard S. J. Tol (University of Sussex, Vrije Universiteit, Tinbergen Institute, CESifo, Colorado School of Mines)

JEL n.: D24, O44, O47, Q54
Keywords: Climate Change, Weather Shocks, Economic Growth, Stochastic Frontier Analysis

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.

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Suggested citation: R. S. J. Tol, (2021), 'The economic impact of weather and climate', Nota di Lavoro 4.2021, Milano, Italy: Fondazione Eni Enrico Mattei

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