Global Temperature Effects on Economic Activity and Equity: A Spatial Analysis

Since the first concerns about potential damages from climate change impacts, their economic assessment has emerged as one of the most challenging and controversial issues. While there is evidence of non-linear impact of climate change on economic activity at the country level, we use the highest resolution economic activity data available to revisit the relationship between climatic exposure and economic performance to investigate the potential distribution of future climate impacts across space. The increased detail of the economic processes involved allows us to study the impact of climatic stressors at the local level, explicitly accounting for spatial dependence and decreasing estimation biases. We find that the global optimal temperature maximizing economic activity is 9°C. As a result, a uniform increase of 1°C in temperature above the current grid-cell specific climatic conditions would reduce mean global economic activity by 7.9%. Extreme temperature events further exacerbate these negative impacts, one standard deviation increase in the frequency of warm spells could reduce mean global economic activity by approximately an additional 1.6%. The uneven distribution of impacts across grid-cells results in a significant worsening of income inequality both across and within countries. Grid-cells with the lowest level of economic activity also experience the highest losses, while global average Gini coefficient increases from the historical value of 0.33 to 0.46 in 2100. Inequality will increase within all the major continents and regions, with the highest increases in South America and Asia.