Global economic impact of weather variability on the rich and the poor

Abstract

The distribution of temperature and precipitation has been shown to impact economic productivity all around the world. These heterogeneous patterns change under future warming and impact consumers not only locally but also remotely through supply chains and trade relations. Due to the possibility of a non-linear economic response, these effects are difficult to quantify and have been subject to limited empirical assessment focusing on direct impacts of weather extremes. Here we show in numerical simulations of weather-induced production disruptions (of more than 7000 profit-maximising producers and utility-optimising consumers with more than 1,8 million supply linkages) that, under present-day climatic conditions, consumption loss risks resulting from production disruptions propagating through the economic network are larger for lower than for higher income groups within countries. Comparison between countries shows that risks are larger for medium income countries than for low and high income countries, which emerges from differing trade dependencies as well as heterogeneous exposure and response. Projecting observed econometric relations of weather variability and economic productivity until 2040, we find an amplification of loss risks due to near-term climate change in most regions. This amplification increases with income for middle and high income countries, while it is homogeneous across income groups in low-income countries. Global warming thus poses an increasing challenge to consumers through supply chains around the globe which needs to be addressed by fostering resilience. To avoid further harm to productivity and consumer welfare the climate has to be stabilised.