The economic impact of weather and climate
Richard S. J. Tol (University of Sussex, Vrije Universiteit, Tinbergen Institute, CESifo, Colorado School of Mines)
D24, O44, O47, Q54
Climate Change, Weather Shocks, Economic Growth, Stochastic Frontier Analysis
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.
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