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Is Temperature Adversely Related to Economic Development?

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WP 2022-08.

We investigate the effect of rising temperatures on regional economic development, using annual sub-national data for over 1,500 regions in 155 countries between 1990 and 2017. In a panel setting with region- and country-time-fixed effects, we find no evidence of a homogeneous or heterogeneous effect of rising temperatures on economic development as measured by regional per capita income. We also employ a long-difference approach that is attuned to exploring the long-run
relationship between rising temperatures and regional income. We find that for a minority of regions located within countries with weak economic-legal and political institutions, rising temperatures are negatively associated with regional per capita income in the long run. For those vulnerable regions, we also show that rising temperatures curtail long-run regional population and human capital development.
Exploring alternative regional per capita GDP data from 1950 onwards yields identical empirical conclusions. In sum, our results suggest that the adverse economic consequences of temperature compound over time, only becoming
noticeable in the long run for regions in already disadvantaged countries. Thus, country-specific conditions crucially moderate regional economic vulnerability to future temperature increases due to global warming.

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