Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/272019 
Year of Publication: 
2023
Series/Report no.: 
CESifo Working Paper No. 10375
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We use theory and empirics to distinguish between the impact of temperature on transition (temporary) and steady state (permanent) growth in output per capita. Standard economic theory suggests that the long-run growth rate of output per capita is determined entirely by the growth rate of total factor productivity (TFP). We find evidence suggesting that the level of temperature affects the level of TFP, but not the growth rate of TFP. This implies that a change in temperature will have a temporary, but not a permanent, impact on output per capita growth. To highlight the quantitative importance of distinguishing between permanent and temporary changes in economic growth, we use our empirical estimates and theoretical framework to project the impacts of future increases in temperature caused by climate change. We find losses that are substantial, but smaller than those in the existing empirical literature that assumes a change in temperature permanently affects economic growth.
Subjects: 
climate change
economic growth
JEL: 
O44
Q54
Q56
Document Type: 
Working Paper
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