"Higher temperatures lead to substantially lower economic growth in poor countries," says Ben Olken, a professor of economics at MIT, who helped conduct the research. And while it's relatively straightforward to see how droughts and hot weather might hurt agriculture, the study indicates that hot spells have much wider economic effects.
"What we're suggesting is that it's much broader than [agriculture]," Olken adds. "It affects investment, political stability and industrial output."
Varied effects on economies
The paper, "Temperature Shocks and Economic Growth: Evidence from the Last Half Century," was published this summer in the American Economic Journal: Macroeconomics. Along with Olken, the authors are Melissa Dell PhD '12, of Harvard University, who was a PhD candidate in MIT's Department of Economics when the paper was produced, and Ben Jones PhD '03, an economist at Northwestern University.
The study first gained public attention as a working paper in 2008. It collects temperature and economic-output data for each country in the world, in every year from 1950 through 2003, and analyzes the relationship between them. "We couldn't believe no one had done it before, but we weren't really sure we'd find anything at all," Olken says.
By looking at economic data by type of activity, not just aggregate output, the researchers concluded there are a variety of "channels" through which weather shocks hurt economic production -- by slowing down workers, commerce, and perhaps even capital investment.
"If you think about people working in factories on a 105-degree day with no air conditioning, you can see how it makes a difference," Olken says.
One consequence of this, borne out in the data, is that the higher temperatures in a given year affect not only a country's economic activity at the time, but its growth prospects far into the future; by the numbers, growth lagged following hot years. More
