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Climate Economics Seminar: The Income-Temperature Relationship in a Cross-Section of Countries and its Implications for Predicting the Effects of Global Warming

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Date(s): December 2, 2008 (2-3:30 pm)

Location: Room 4144, EPA West

Presenter: John Horowitz (University of Maryland)

Description: Hotter countries are poorer on average. This paper attempts to separate the historical and contemporaneous components of this income-temperature relationship. Following ideas by Acemoglu, Johnson, and Robinson, the authors use colonial mortality data to account for the historical role of temperature, since colonial mortality was highly correlated with countries’ average temperatures. The authors argue that the remaining income-temperature gradient, after colonial mortality is accounted for, is most likely contemporaneous.

This contemporaneous temperature effect can be used to estimate the cost of global warming. The authors predict that a 2 degree Fahrenheit temperature increase across all countries will cause a decrease of roughly 4 percent in world GDP. This prediction is robust across samples, functional forms, and two methods for separating historical effects.

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