The Relative Role of Temperature and Precipitation in Global Economic Growth

Abstract

<p>Global warming has slowed economic growth and aggravated global economic inequality, affecting individual wellbeing in a wide-ranging aspects. Quantifying these historical impacts is critical for informing climate change mitigation and adaptation and achieving a more equitable economic development. This paper extends existing literature by exploring the effects of precipitation on economic growth. Based on a panel of 169 countries over the period 1961-2019, we demonstrate a statistically significant non-linear effect of precipitation on economic growth, such that output is maximized at around 2.03 metres of annual total precipitation. Despite of the significant sensitivity of precipitation, we find its impacts are relatively small and are completely overwhelmed by the effects of temperature. We examine the historical marginal effects of climate change and find realized temperature has lowered the annual global growth rate by 0.31 percentage points per year on average, whereas realized precipitation has increased the annual economic growth by roughly 0.01 percentage points. Furthermore, we highlight that countries endowed with different climate conditions exhibit substantially different reactions to historical climate change. For example, Europe and Central Asia countries have benefited both from temperature rising and precipitation fluctuations; while adverse impacts are observed for both factors in African countries. These findings suggest the importance of precipitation for countries with vulnerable ecosystems and inform the possibility of incorporating precipitation in economic development projections under future climate trajectories.</p>