August 10, 2012

Source: Financial Times

High temperatures are hurting crops in Russia and the US alike, raising fears over food prices. But food inflation isn’t the only issue that should worry policy makers.

Rising temperatures across the globe also hurt developing nations’ economic growth more than developed countries, according to a new study from the Massachusetts Institute of Technology. For every one-degree centigrade increase in temperature, a poor country can expect economic growth to drop by about 1.3 percentage points. But wealthier nations were found to be far less affected by temperature variations.

Worldwide temperatures are on the rise. The US government’s National Oceanic and Atmospheric Administration reports that “globally averaged land surface temperature for June 2012” was the warmest June on record, coming in at 1.07 degrees centigrade above average.

The study looks deeper than just overall GDP, examining different types of economic activity and how various sectors are impacted by rising temperatures. The study covered 125 countries, grouping them by GDP per capita, and comparing to weather data over the last half-century.

The results were certainly revealing. Countries in the lower half of the GDP per capita ranking fit the downward trend – higher temperatures, slower growth. But richer countries demonstrated little correlation between temperature and growth.

Of course, there are outliers. Mozambique jumps out as a country that saw tremendously positive change in growth despite a temperature rise. Meanwhile Botswana bore the brunt of a severe temperature change and negative growth, making it something of a poster child for the study. Given they are about 1,000km apart, in the same region of southern Africa, it looks odd.

In fact, in years of higher temperatures, sub-Saharan Africa overall proved to be particularly hard hit. But in subsequent years, the difference became negligible: short-term impacts subsided and long-term growth fell in line.

Richer countries had their exceptions as well. Kuwait saw a strong rise in temperatures and growth, as it moved from a poor pearl farming community to an international oil powerhouse.

Each year the weather can have a severe effect on economies large and strong, through all types of events. The question is whether the economic activity can bounce back, or if it is pushed onto a lower growth trajectory.

“If you think about economic growth, you build on where you were last year,” said Ben Olken, a professor of economics at MIT and one of the authors of the study. “If it’s [industrial or technological] activity that’s lost, then it affects the country’s long-run growth rate, [and it’s] not a one-off hit.”

For nations in the bottom half, the effect of rising temperatures on agriculture can be significant, but may rebound quickly as harvests recover. But the impact on industrial and technological development as well as capital investment can build over years. As emerging nations are playing catch-up in terms of technology, being knocked off course is not good news.

The study is ammunition for the politically sensitive issue of international environmental regulation, with many critics claiming that the pollution of richer countries is holding back smaller nations. Various NGOs and organisations, such as the Climate Vulnerable Forum have become a sounding board to bring attention to the issue of pollution and developing nations.

Olken was careful to note that this study deals only with the issue of rising temperatures and not pollution more generally or other aspects of global climate change.

However with the lack of progress toward global environmental goals and temperatures rising, the MIT study points to the impact that rising global temperatures are having on developing nations.