Heterogeneous effects of temperature and emissions on economic productivity across climate regimes

The impact of climate change has resulted in several long-term events including extreme temperatures. Besides, the occurrence of climate events impedes economic progress––affecting economic readiness of climate mitigation. However, the effect of climatic factors on economic productivity has not been extensively covered in existing literature, especially among climate regimes. Here, we use sophisticated panel and time series techniques to examine the heterogeneous effects of temperature and emissions on income from 1960 to 2014. Our empirical results indicate a 1% rise in temperature declines income by 0.39% whereas 1% increase in emission levels stimulates income by 0.22%. This implies a mutual relationship between income and emissions––where environmental pollution supports wealth creation and vice versa. We find that a shift from optimal temperature levels to extreme patterns hamper economic productivity. Extreme temperatures affect heating and cooling degree days due to increased energy requirements, hence, escalating energy demand and emissions. With the agenda towards emission reduction, this study emphasizes economic structural change through transition from brown to green growth.