Documents Fried, Stephie 2 results

"Existing climate-economy models use aggregate damage functions to model the effects of climate change. This approach assumes climate change has equal impacts on the productivity of firms that produce consumption and investment goods or services. We show the split between damage to consumption and investment productivity matters for the dynamic consequences of climate change. Drawing on the structural transformation literature, we develop a framework that incorporates heterogeneous climate damages. When investment is more vulnerable to climate, we find short-run consumption losses will be smaller than leading models with aggregate damage functions suggest, but long-run consumption losses will be larger. We quantify these effects for the climate damage from heat stress and find that accounting for heterogeneous damages increases the welfare cost of climate change by approximately 4 to 24 percent, depending on the discount factor."

"We use theory and empirics to distinguish between the impact of temperature on transition (temporary) and steady state (permanent) growth in output per capita. Standard economic theory suggests that the long-run growth rate of output per capita is determined entirely by the growth rate of total factor productivity (TFP). We find evidence suggesting that the level of temperature affects the level of TFP, but not the growth rate of TFP. This implies that a change in temperature will have a temporary, but not a permanent, impact on output per capita growth. To highlight the quantitative importance of distinguishing between permanent and temporary changes in economic growth, we use our empirical estimates and theoretical framework to project the impacts of future increases in temperature caused by climate change. We find losses that are substantial, but smaller than those in the existing empirical literature that assumes a change in temperature permanently affects economic growth."