What Do We Learn from the Weather? The New Climate-Economy Literature

TLDR

A rapidly growing body of panel‑method studies examines how temperature, precipitation, and windstorms affect economic outcomes such as agriculture, industry, labor productivity, energy demand, health, conflict, and growth, using exogenous temporal variation to identify channel breadth, heterogeneity, and nonlinear effects. This paper reviews the new climate‑economy literature with two purposes. The authors summarize recent work by detailing its methodologies, datasets, and findings, and then discuss applications of the literature, including insights for the damage function in models assessing future climate change impacts. JEL codes: C51, D72, O13, Q51, Q54.

Abstract

A rapidly growing body of research applies panel methods to examine how temperature, precipitation, and windstorms influence economic outcomes. These studies focus on changes in weather realizations over time within a given spatial area and demonstrate impacts on agricultural output, industrial output, labor productivity, energy demand, health, conflict, and economic growth, among other outcomes. By harnessing exogenous variation over time within a given spatial unit, these studies help credibly identify (i) the breadth of channels linking weather and the economy, (ii) heterogeneous treatment effects across different types of locations, and (iii) nonlinear effects of weather variables. This paper reviews the new literature with two purposes. First, we summarize recent work, providing a guide to its methodologies, datasets, and findings. Second, we consider applications of the new literature, including insights for the “damage function” within models that seek to assess the potential economic effects of future climate change. (JEL C51, D72, O13, Q51, Q54)