Cookies?
Library Header Image
LSE Research Online LSE Library Services

On climate change and economic growth

Fankhauser, Samuel ORCID: 0000-0003-2100-7888 and Sjtol, Richard (2005) On climate change and economic growth. Resources and Energy Economics, 27 (1). pp. 1-17. ISSN 0928-7655

Full text not available from this repository.
Identification Number: 10.1016/j.reseneeco.2004.03.003

Abstract

The economic impact of climate change is usually measured as the extent to which the climate of a given period affects social welfare in that period. This static approach ignores the dynamic effects through which climate change may affect economic growth and hence future welfare. In this paper we take a closer look at these dynamic effects, in particular saving and capital accumulation. With a constant savings rate, a lower output due to climate change will lead to a proportionate reduction in investment which in turn will depress future production (capital accumulation effect) and, in almost all cases, future consumption per capita. If the savings rate is endogenous, forward looking agents would change their savings behavior to accommodate the impact of future climate change. This suppresses growth prospects in absolute and per capita terms (savings effect). In an endogenous growth context, these two effects may be exacerbated through changes in labour productivity and the rate of technical progress. Simulations using a simple climate-economy model suggest that the capital accumulation effect is important, especially if technological change is endogenous, and may be larger than the direct impact of climate change. The savings effect is less pronounced. The dynamic effects are more important, relative to the direct effects, if climate change impacts are moderate overall. This suggests that they are more of a concern in developed countries, which are believed to be less vulnerable to climate change. The magnitude of dynamic effects is not sensitive to the choice of discount rate.

Item Type: Article
Official URL: http://www.journals.elsevier.com/resource-and-ener...
Additional Information: © 2005 Elsevier
Divisions: Grantham Research Institute
Subjects: G Geography. Anthropology. Recreation > GE Environmental Sciences
H Social Sciences > HB Economic Theory
J Political Science > JA Political science (General)
JEL classification: D - Microeconomics > D9 - Intertemporal Choice and Growth > D91 - Intertemporal Consumer Choice; Life Cycle Models and Saving
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E21 - Macroeconomics: Consumption; Saving; Aggregate Physical and Financial Consumer Wealth
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O13 - Agriculture; Natural Resources; Energy; Environment; Other Primary Products
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q2 - Renewable Resources and Conservation > Q25 - Water
Date Deposited: 07 Dec 2011 09:25
Last Modified: 02 Dec 2024 21:36
URI: http://eprints.lse.ac.uk/id/eprint/39950

Actions (login required)

View Item View Item