Climate Change Uncertainty, Adaptation, and Growth by Kamiar Mohaddes, University of Cambridge

We study the long-run impact of climate change on economic growth. Our theoretical growth model postulates that labour productivity is affected by a common technological factor and country-specific climate variables. Using data on a sample of 174 countries over the 1960-2014 period, we find that climate change has a permanent negative effect on long-run output growth when temperature deviates from its historical norm. Our counterfactual analysis suggests that without adaptation, an increase in temperature by 0.01 °C per year (corresponding to the Paris Agreement in 2015, keeping global temperatures below 2 °C above pre-industrial levels) reduces real GDP per capita by 5.67 percentage points over a 100 year period. We illustrate that climate change adaptation could substantially reduce these negative long-run growth effects, but it is highly unlikely to offset them.