9. Climate change, industrial activity, economic complexity Flashcards
What are the economic impacts of climate change?
Toll (2018)
Most economists agree that climate change is a negative externality and that greenhouse gas emissions should be priced or taxed
Toll (2018) argues that impacts are many and diverse, therefore we need aggregate indicators to assess whether climate change is, on balance, good or bad relative to other problems society faces.
Results indicate that a global mean temperature increase of 2.5 C would make the average person feel as if she had lost 1.3 percent of her income
Estimates suggest that a century of climate change is likely to be no worse than losing a decade of economic growth (HIGHLY DOUBTFUL BUT OK)
Estimates suggest that the welfare impacts of initial warming are positive on net (sunk benefits - we will reap these benefits no matter what we do about emissions), while further warming will lead to net damages
How will impacts of climate change be distributed globally?
Toll (2018) - pretty unequally
Poorer, hotter countries are more vulnerable to climate change because:
- They are more exposed to the weather because of the role of agriculture and water resources in the economy
- They are in hotter places; if they become hotter, there are no other examples to learn from -> new tech will have to be developed (for example if UK becomes the temperature of Spain, they can learn from their past experiences, but if Australia becomes hotter they will have to do trial and error)
- Limited adaptive capacity (because of lack of tech and money)
What is the “social cost of carbon”?
Toll (2018)
“incremental impact of emitting an additional ton of carbon dioxide, or the benefit of slightly reducing emissions”
- the amount GHG emissions should be taxed in order to maximize welfare
Social cost of carbon is very complex because of its computation:
Some say it can be estimated as: a “function of total economic output, the pure rate of time preference, elasticity of damage with regard to the atmospheric concentration of carbon dioxide, and the rate of decay of carbon dioxide in the atmosphere”
What are Negative Emission Technologies (EMTs)?
Systems that physically remove CO2 from the atmosphere and store it in long-lived, typically geological, sinks (Snyder, 2020)
What is labor reallocation and how does it relate to climate change?
Colmer (2021)
Weather changes affect agricultural productivity and that, in turn, has an impact on the economic and policy environment to mitigate economic losses-> reallocation of workers in other sectors or to unaffected locations
What are the effects of weather on wages and employment?
Colmer (2021) looks at wages, employment, and unemployment in India and concludes that a 1 degree Celsius increase in daily average temperature is associated with 13.4% decrease in the average day wage of agricultural workers.
Agricultural workers move into manufacturing which in turn reduces the wages in that sector (because of higher supply of labor)
He also finds that 1 degree Celsius increase in daily average temperature is associated with 7.1% reduction in the district share of agricultural employment and a slight increase in the manufacturing and service sectors, suggesting workers are able to find employment in new sectors.
What are the effects of weather on agricultural markets?
Colmer (2021) looks at how rainfall and temperature affect yields in India. Finds out that temperature is a more important factor in agricultural production in India than rainfall (contrary to common literature emphasizing the importance of rainfall)
1 degree Celsius increase in temperature is associated with 12.2% reduction in yield
100 mm increase in rainfall is associated with 1.13% increase in yield
The effects of temperature are more difficult to address and require heat-resistant crop varieties - if rainfall decreases, it can be dealt with by irrigation systems.
What is Economic Complexity?
EC according to Hausmann et al. (2013)
- measures the amount of productive knowledge each country holds
- captures the similarity of products in terms of their knowledge requirements
- has the capacity to predict the rate at which countries will grow
amount of knowledge is not as important as diversity of knowledge.
What is Productive Knowledge?
Hausmann et al. (2013)
- diversity of know-how in modern developed societies
The amount of productive knowledge a country has is reflected in the variety of firms it has, in the variety of occupations that firms require and in the extent of interactions between firms
chicken and egg problem:
countries can accumulate productive knowledge by developing their capacities to make a larger variety of products of increasing complexity; but that also requires productive knowledge in the first place
How do we measure Economic Complexity?
Hausmann et al. (2013)
- looking at what a country produces can tell us what it knows (using international trade data)
- look at the diversity of products being produced
- look at ubiquity: how many other countries can produce the same products
Limitations:
- data is on exports, not production
- focus on only goods, not services
- doesn’t include non-tradable activities like construction, electricity, distribution, restaurants, etc.
Why is Economic Complexity important?
Hausmann et al. (2013)
- strong correlation between EC and income per capita (EC is a driver of economic prosperity); countries with higher EC have higher incomes per capita
- countries whose EC is higher than what we would expect given their current level of income tend to grow faster than countries whose income is higher than expected, given their EC
- countries with higher EC tend to have better institutions, more educated workers, and more competitive environments
How does Economic Complexity evolve?
Hausmann et al. (2013)
Countries expand their productive knowledge by moving into nearby goods - requiring similar capabilities to what they already produce now
One aspect literature can’t explain is why this process of development occurs in some countries and not in others? Also - do all countries have to follow the “same” path of development?!
