warmth & the economy

[Doug Henwood]

"The Income-Temperature Relationship in a Cross-Section of
  Countries and its Implications for Global Warming"

       BY:  JOHN K. HOROWITZ
               University of Maryland

Document:  Available from the SSRN Electronic Paper Collection:
            http://papers.ssrn.com/paper.taf?abstract_id=260990

Paper ID:  U of Maryland Working Paper No. 01-02
     Date:  February 14, 2001

  Contact:  JOHN K. HOROWITZ
    Email:  Mailto:horowitz at arec.umd.edu
   Postal:  University of Maryland
            Department of Agricultural and Resource Economics
            2200 Symons Hall
            College Park, MD 20742  USA
    Phone:  301-405-1273
      Fax:  301-314-9091

ABSTRACT:
  One way of gauging how global warming will affect an economy is
  to look at the economic performance of countries that are
  warmer. This paper looks at the income-temperature relationship
  for a cross-section of 156 countries in 1999. As is well known,
  hotter countries are poorer on average. The widespread belief is
  that this relationship is mostly historical; that is, due to a
  past effect of climate. Acemoglu, Johnson, and Robinson have
  recently made great gains in identifying a specific historical
  path. They posit that mortality rates of early colonizing
  settlers had a profound effect on the institutions that were set
  up in those colonies. These institutional differences persist to
  this day, they argue, and have strong effects on current
  incomes. Because colonial mortality and average temperature are
  highly correlated, the mortality-income relationship also
  manifests itself as an income-temperature relationship. There
  is, however, sufficient evidence to warrant continued
  examination of the income-temperature relationship. First, we
  find a strong income-temperature relationship within OECD
  countries, a result that does not appear to be predicted by the
  colonial mortality model and that various authors seem to
  disavow. Second, we find that the income-temperature
  relationship is essentially the same within the OECD and
  non-OECD countries, a striking yet unremarked and as-yet
  unexplained result. Third, we find an exceptionally strong
  income-temperature relationship within the fifteen countries of
  the former Soviet Union, where colonial institutions would seem
  to have been wiped out. Our best measure of the effect of
  temperature on income, after accounting for the influence of
  colonial mortality, is that a one percent increase in
  temperature leads to a -0.9 percent decrease in per capita
  income. Thus, a temperature increase of 3 degrees Fahrenheit
  would result in a 4.6 percent decrease in world GNP.

  Keywords: global warming, income and temperature, new
  geography, colonial mortality