Panel Paper: Weather and Economic Outcomes

Tuesday, June 14, 2016 : 12:30 PM
Clement House, 3rd Floor, Room 05 (London School of Economics)

*Names in bold indicate Presenter

Sharad Tandon, United States Department of Agriculture- Economic Research Service and Molly Brown, University of Maryland
The relationship between weather shocks and economic outcomes is particularly important to better understand for policymakers given the prospect of a changing climate.  A rapidly growing literature demonstrates a negative relationship between aggregated economic outcomes and average temperature in poorer countries, which is potentially driven by both adverse agricultural shocks and by lower labor productivity in hotter temperatures (e.g., Dell et al. 2012).[1]  Alternatively, a number of studies have found a positive effect of rain in the previous year on aggregate economic outcomes in regions where rainfed agriculture is pervasive (e.g., Miguel et al. 2004).  However, it is important to note that this link has weakened over time, as rainfed agriculture becomes less important to overall economy-wide outcomes (e.g., Miguel and Satyanath 2011). 

This paper seeks to better analyze the relationship between weather shocks and economic outcomes at the individual level, as opposed to aggregated economic outcomes.  There are potentially distributional issues where the economy-wide impacts might not trickle down to all subsets of the population.  Additionally, average annual temperature and rainfall aggregates a number of different and potentially offsetting weather shocks.  For example, hotter temperatures during coldest season of the year might actually improve labor productivity, whereas cooler temperatures during the hottest season might have the opposite effect.  Additionally, this paper also seeks to generalize the economic outcomes analyzed to include individual income, employment, and an experiential measure of food security.  

To better analyze the effects weather shocks have on individual economic outcomes, this paper merges satellite imagery data on temperature and vegetation with data from the Gallup World Poll, which contains self-reported income, well-being, and a number of other respondent characteristics.  The Gallup World Poll is a survey that is conducted in over 150 countries, and is available from 2006-2015.  The survey period varies from year to year for each country, and thus respondents report their income and well-being at various seasons during the year in each country.  Furthermore, the survey reports which region within the country the respondent resides, and thus satellite imagery data at the sub-national level are merged with each respondent.[2]

Preliminary results demonstrate that the effect of weather shocks are more complicated than a simple relationship between average temperature and rainfall and economic well-being, and that the timing of the events are important.  In particular, there is little evidence of a relationship between average temperature in the previous year and economic well-being at the individual level.  However, a higher temperature in the month before the survey during the growing season (hot season) has a significantly negative effect on income, employment, and food security.  Furthermore, we can demonstrate that in poorer countries, higher temperatures have a positive effect on economic well-being during cooler seasons.  Alternatively, rainfall had a much more muted and less robust impact on respondents.

[1] See Dell et al. (forthcoming) for an excellent summary of this literature.

[2] The size of the regions vary from country to country.