Study Finds Climate Change May Widen Rich-Poor Gap

Rising global temperatures may lead to increased disparities between rich and poor countries, according to a recent MIT economic analysis of the impact of climate change on growth.

Benjamin A. Olken examined worldwide climate and economic data from 1950 to 2003. Olken, associate professor in the Department of Economics, has concluded a 1 degree Celsius rise in temperature in a given year reduces economic growth by an average of 1.1 percentage points in the world's poor countries but has no measurable effect in rich countries. Olken's research suggests higher temperatures will be disproportionately bad for the economic growth of poor countries compared to rich countries. While, the precise reasons why higher temperatures lower economic output are likely to be complex, Olken's results suggest the importance of temperature's impact on agricultural output. His data also provide evidence for a relationship between temperature and industrial output, investment, research productivity and political stability. "The potential impacts of an increase in temperature on poor countries are much larger than existing estimates have suggested," Olken says. "Although historical estimates don't necessarily predict the future, our results suggest that one should be particularly attentive to the potential impact of climate change on poorer countries." Olken's analysis is contained in "Climate Shocks and Economic Growth: Evidence from the Last Half Century," a paper co-authored by MIT economics graduate student Melissa Dell and Benjamin F. Jones, associate management professor at Northwestern University. The paper is currently under review for publication. Olken has been researching issues of growth and temperature for about two years and presented some of the findings at a recent conference of the American Economic Association. Contemporary scholars have debated whether climate has a significant effect on a country's economy today or whether it is institutions and policies that now solely drive prosperity. Olken and his co-authors, to conduct their research, used existing data sets of economic growth and productivity -- everything from gross domestic product to the rate of publication of scientific papers -- and combined them with country-by-country temperature and precipitation data from 1950 to 2003. They concluded rising temperatures do substantially reduce economic output and growth rates in both agricultural and industrial sectors, but only in countries that are already poor. Higher temperatures also reduce investment and innovation but, again, only in poor nations. Rising temperatures may also have political consequences, the authors found. A one-degree rise in temperature in poor countries raises the likelihood of a so-called irregular leader transition (i.e., a coup) by 3.9 percentage points. The long-term impact of temperature change might be different from the short-term effect since countries may adapt to a particular climate over time. But Olken's research found no such adaptation over a 10-year time horizon. If future effects mirror recent history, world policy makers may do well to be prepared for a widening gap between rich and poor countries as the globe continues to warm.