The Impacts of Weather, Weather Fluctuations, and Natural Disasters on Economic Growth

Abstract

The relationship between prevailing climate and economic growth has been studied rigorously over the past century. This is partially because reverse causation is unlikely (the state of the economy has no effect on weather) and weather is exogenous to a country in the short run, so it is much easier to determine causal links between the two. In this paper, I assume that a country’s policymakers and inhabitants make some decisions that are both pertinent to the economy and based at least partially off of their expectations of weather. With this assumption, and additionally assuming that these policymakers and inhabitants use past weather to predict future weather, I can use historical data on weather and GDP growth to determine relationships between economic development and three types of explanatory variables: weather, weather fluctuations, and natural disasters. In this study, panel data collected on 216 countries over a period of 54 years is used to determine whether or not there are any statistically and economically significant links between these variables and economic growth.