Climate change and economic growth: Some critical reflections

Abstract

Global warming may affect the economic development and, thus, the welfare of people around the world. Therefore, the economic effects of a changing climate should be known in order to be able to design appropriate policy responses. In the economics literature, one research field empirically analyzes the growth effects of global warming. But often those studies do not account for economic variables that have turned out to be significant in explaining economic growth. In addition, they frequently fail to check for the robustness of their outcomes. This can give rise to biased results regarding the growth process and, therefore, does not necessarily reflect the true data-generating process. Hence, the question comes up: how valid and reliable the results are. Therefore, economic analyses should be undertaken that study the robustness of the results as regards the integration of fundamental economic variables. When policy recommendations are made on how to deal with global warming, we argue that they should be based on robust results only. If that does not hold, economic policy risks being inadequate, giving rise to substantial welfare losses.