Macroeconomic effects of climate change: Evidence from Canadian provinces

Abstract

We study the long-term macroeconomic effects of climate change across ten Canadian provinces between 1961 and 2017. Following Kahn et al. (2021a), our econometric strategy links deviations of temperature and precipitation (weather) from their multi-decade historical rolling averages (climate) to various province-specific economic performance indicators at the aggregate and sectoral levels. We show that climate change (proxied by a series of weather shocks) has a long-lasting adverse impact on real output in various Canadian provinces and economic sectors. Adaptation reduces the income losses but cannot offset them entirely. Moreover, in contrast to most cross-country results, our within-country estimates suggest asymmetrical growth effects from precipitation and temperature anomalies. Specifically, persistently higher-than-normal precipitation is associated with lower long-term GDP growth, whereas the effect of below-than-normal precipitation is not statistically significant. As regards temperature, while extended periods of cold spells (temperature persistently below historical norms) is detrimental to growth (though less likely in the future), Canada is not benefiting from a warmer climate as often argued in the literature.