Environment International

Warming Worries for Our Economy?

We’ve all seen the countless articles in the news over the past year: ‘2020 tied for warmest year on record,’ NASA; ‘Earth at risk of becoming a hothouse’, CNN; ‘Rising seas will erase more cities by 2050’, The New York Times. Rising temperatures have had grave effects on our planet; but what has this meant for the world economy and how could this impact our output in the future?

It may come as a surprise to many to hear that countries with higher temperatures tend to be poorer on average. It is an odd connection but one with immense strength. Recognizing all factors available, temperature determines 9% of a nation’s GDP per capita, a staggering statistic when considering all contributing elements such as quality of education. The correlation between temperature and output has been neglected for years and only now has compelling evidence emerged. Mozambique, Uganda and the Democratic Republic of Congo are among the poorest nations of the world with all three having a GDP per capita lower than $800. It is also no coincidence that they are positioned very close to the equator, the hottest region on the planet. Data has shown that a 1 ˚C difference in temperature between countries is associated with a $762 fall in GDP per capita as well as an 8.5% decrease in national income per capita. In general, the closer to the equator, the lower the GDP per capita.

This phenomenon is not only visible between countries; but also within them. Australia is a thriving economy which ranks 13th in terms of international GDP with $1.4 trillion according to the World Bank. The two largest and wealthiest cities in Australia are Sydney and Melbourne, which both line the southern coast; yet through examining the abundance of natural resources and the importance of fast trade routes, the wealthiest city would be expected to be Darwin; a small city on the northern coast with a GDP per capita one-fourteenth the size of Sydney. It therefore comes as little surprise that the annual average temperature in Darwin is 9.8 ˚C warmer than in Sydney.

However, it is not to say that this correlation does not come with any exceptions. There are strong examples of nations that are cold yet poor, and those that are hot yet rich. North Korea experiences extreme deprivation with over 60% of all citizens living below the poverty line despite maintaining a cool continental climate all year. Political and economic institutions have constrained the potential wealth of North Korea as dictatorships have ruled the nation for decades. Conversely, places such as Dubai, the UAE and Bahrain have great pools of wealth within them despite annual average temperatures of over 30 ˚C. This is because of the discovery of oil in the early 1900’s which resulted in the UAE alone producing $165 million dollars of oil per day in 2020. Resources related to petroleum and other oil refinery products have sustained enough wealth for the Middle East to overcome the extreme temperatures; something so many nations do not have the luxury of having.

There are various theories as to why this peculiar connection is around in today’s world, however there is one which is more convincing than the rest. Economic selection, a similar process to Charles Darwin’s natural selection yet with an industrious twist. Countries further from the equator generally experience harsh winters and mild summers; this led to societies hundreds of years ago having to plan their necessities for winter during the warmer times of the year. In gelid regions those civilizations with strong shelter and considerable food as well as fuel reserves often survived the colder months; those without didn’t. This simple concept has compounded over generations and eventually those who remain have developed the natural necessity of diligence, leaving us where we are now.

This certainly hasn’t always been the case however. Journey back to the times of the previous powerhouses of the planet and you discover something which could at first glance disprove this relationship. Many of these civilizations were particularly prosperous despite actually being located in warm regions. The Egyptians underwent periods of extreme success in possessing large proportions of the world’s wealth well over 2000 years ago. Agricultural capacity was the way to compare regions before the time of GDP. Being able to produce substantial food supplies all year round came with both great fortune as well as power. Contrary to previous times, the focus has shifted more towards the secondary and tertiary sectors, meaning that this climate advantage can no longer benefit countries in the same way.

So, as the earth’s temperature continues to intensify where does this leave us? Well, the world’s inequality gap, with the richest 1% of people having more than double the wealth of 6.9 billion people, will only increase. According to World Meteorological Organization secretary-general Petteri Taalas, global temperatures may reach the predicted 5 ˚C warmer than they are now by 2099, resulting in poorer nations experiencing a 40% decline in output levels. Even just a 0.8 ˚C increase in any given year will result in economic growth falling by 1.1%. More conservative predictions have estimated a 3.8 ˚C rise by 2100 will shrink the GDP of the USA by 3%, with rising sea levels alone causing a contraction of over 38% to the GDP of Pakistan. Specific areas of the economy will of course carry the majority of the burden with agriculture likely to undergo a 5% contraction per decade which would only weaken global food security. Our future remains uncertain, and without action, the consequences will undeniably be perilous. Perhaps these warming worries will soon be reality for us all.

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