Climate change and economic growth: Plug-in model averaging approach

Abstract

Bearing in mind the devastating nature of climate change, the question of how climate change affects economic growth is becoming increasingly important. The aim of this paper is to answer this question by eliminating the most important methodical shortcoming of the available literature. The analysis is based on an advanced plug-in model averaging procedure that allows taking into account a very large number of potentially important growth determinants. The results of the analysis show that the growth of CO2 and CH4emissions by 1%, increases on average the economic growth rate by 0.00132 and 0.00537 percentage points, respectively. In addition, an increase in surface temperature change by one degree Celsius results in an average increase in the rate of economic growth by 0.865 percentage points. Finally, increasing the number of climate-related disasters by one leads to an average increase in the economic growth rate of 0.115 percentage points. The obtained findings also reveal the impact of climate change is very heterogeneous across countries. Such results imply that the current extent of global warming and climate change does not yet have a dominant negative impact on economic growth.