How Might Climate Change Affect Economic Growth in Developing Countries? A Review of the Growth Literature with a Climate Lens

Lecocq, FranckShalizi, Zmarak2012-06-062012-06-062007-08https://hdl.handle.net/10986/7260This paper reviews the empirical and theoretical literature on economic growth to examine how the four components of the climate change bill, namely mitigation, proactive (ex ante) adaptation, reactive (ex post) adaptation, and ultimate damages of climate change affect growth, especially in developing countries. The authors consider successively the Cass-Koopmans growth model and three major strands of the subsequent literature on growth: with multiple sectors, with rigidities, and with increasing returns. The paper finds that although the growth literature rarely addresses climate change per se, some issues discussed in the growth literature are directly relevant for climate change analysis. Notably, destruction of production factors, or decrease in factor productivity may strongly affect long-run equilibrium growth even in one-sector neoclassical growth models; climatic shocks have had large impacts on growth in developing countries because of rigidities; and the introducing increasing returns has a major impact on growth dynamics, in particular through induced technical change, poverty traps, or lock-ins. Among the most important gaps identified in the literature are lack of understanding of the channels by which shocks affect economic growth, lack of understanding of lock-ins, heavy reliance of numerical models assessing climate policies on neoclassical-type growth frameworks, and frequent use of an inappropriate "without climate change" counterfactual.CC BY 3.0 IGOADVERSE CONSEQUENCESADVERSE IMPACTSAGGREGATE LEVELAGGREGATE OUTPUTAGRICULTURAL PRODUCTIVITYAGRICULTUREATMOSPHEREBANKING CRISISBIODIVERSITYCAPITAL STOCKCLIMATECLIMATE CHANGECLIMATE CHANGE MODELSCLIMATE CHANGE RESEARCHCLIMATE PROTECTIONCLOSED ECONOMYCO2CO2 EMISSIONSCOMMODITIESCOMPARATIVE ADVANTAGECOMPETITIVE ADVANTAGESCONSTANT RATECONSTANT RETURNSCONSTANT RETURNS TO SCALECONSUMPTION GOODSCONSUMPTION INCREASESCOUNTRY REGRESSIONSCYCLICAL VOLATILITYDAMAGESDECREASING RETURNSDEFORESTATIONDEPRECIATION RATE OF CAPITALDEVELOPED COUNTRIESDEVELOPING COUNTRIESDEVELOPMENT RESEARCHDEVELOPMENT STRATEGIESDIMINISHING RETURNSDISCOUNT RATEDISEASESECONOMIC ACTIVITIESECONOMIC ACTIVITYECONOMIC AGENTSECONOMIC CONSEQUENCESECONOMIC DEVELOPMENTECONOMIC GEOGRAPHYECONOMIC GROWTHECONOMIC MODELSECONOMIC PERFORMANCEECONOMICSECONOMIES OF SCALEELASTICITYELASTICITY OF SUBSTITUTIONELECTRICITYEMISSIONSEMPIRICAL EVIDENCEEMPIRICAL LITERATUREEMPIRICAL RESULTSEMPIRICAL STUDIESENDOGENOUS VARIABLESEQUATIONSEQUILIBRIUMEXCHANGE RATEEXCHANGE RATESEXPORTSFACTOR ACCUMULATIONFACTOR PRICESFACTORS OF PRODUCTIONFINANCIAL CRISESFLOODINGFOREIGN INVESTMENTFORESTRYFORESTSFOSSIL FUELSFRAMEWORK CONVENTION ON CLIMATE CHANGEFUTURE RESEARCHGDPGDP PER CAPITAGEOGRAPHIC CONCENTRATIONGHGSGLACIERSGLOBAL LEVELGREENHOUSE GASESGROSS OUTPUTGROWTH ACCOUNTINGGROWTH EQUATIONGROWTH LITERATUREGROWTH MODELGROWTH OF LABORGROWTH PATHGROWTH PROCESSGROWTH RATEGROWTH RATE OF OUTPUTGROWTH RATESGROWTH REGRESSIONGROWTH REGRESSIONSGROWTH THEORYHUMAN CAPITALINCREASING RETURNSINCREASING RETURNS TO SCALEINDIVIDUAL WELFAREINFANTINFANT MORTALITYINFANT MORTALITY RATEINTERNATIONAL TRADEINVENTORIESINVESTMENT IN EDUCATIONIPCCIRRIGATIONKYOTO PROTOCOLLABOR FORCELANDLOCKED COUNTRIESLDCSLEVEL OF CAPITALLEVEL OF TECHNOLOGYLEVELS OF CAPITALLONG RUNLONG-TERM GROWTHMACROECONOMIC POLICIESMACROECONOMIC POLICYMALARIAMARGINAL PRODUCTMARGINAL PRODUCTIVITYMARGINAL UTILITYMIDDLE EASTMIGRATIONNATIONAL AUTHORITIESNATURAL DISASTERSNATURAL RESOURCESNEOCLASSICAL GROWTH MODELNEOCLASSICAL GROWTH MODELSNEOCLASSICAL GROWTH THEORYNETWORK EXTERNALITIESNUCLEAR ENERGYOUTPUT GROWTHOUTPUT PER CAPITAOUTPUT RATIOOUTPUT STRUCTUREOVERVALUATIONPER CAPITA GROWTHPOLICY CONCERNPOLICY DEBATEPOLICY DECISIONSPOLICY MEASURESPOLICY OPTIONSPOLICY RESEARCHPOLICY RESEARCH WORKING PAPERPOLICY VARIABLESPOPULATION DENSITYPOPULATION INCREASESPOTENTIAL IMPACTSPOVERTY TRAPSPRECIPITATIONPRODUCTION FUNCTIONPRODUCTION FUNCTIONSPRODUCTIVITY OF CAPITALPROGRESSPROPERTY RIGHTSPUBLIC SECTORPUBLIC TRANSPORTATIONRATE OF GROWTHRATE OF POPULATION GROWTHRATE OF RETURNREAL GDPRELATIVE IMPORTANCERENEWABLE ENERGYRESOURCE ALLOCATIONRESPECTRIVERSRULE OF LAWSAVING RATESAVINGSSECTOR MODELSHORT SUPPLYSIGNIFICANT IMPACTSTRUCTURAL CHARACTERISTICSSTRUCTURAL POLICIESSUB-SAHARAN AFRICATECHNICAL CHANGETECHNOLOGICAL CHANGETEMPERATURETFPTHEORETICAL MODELSTOTAL FACTOR PRODUCTIVITYTOTAL FACTOR PRODUCTIVITY GROWTHTOTAL OUTPUTTRADE BALANCETRADE SHOCKSTRANSACTION COSTSTRANSPORTATIONUNDERESTIMATESUNEMPLOYMENTURBAN DEVELOPMENTUTILITY FUNCTIONUTILITY FUNCTIONSVULNERABILITYWEALTHHow Might Climate Change Affect Economic Growth in Developing Countries? A Review of the Growth Literature with a Climate LensWorld Bank10.1596/1813-9450-4315