High temperatures and national saving: Experience in the latest six decades

Abstract

This study investigates the impact of climate change on saving rates. Using a geographic gridded data set, we develop a population-weighted high temperature shocks intensity index. We find that an additional percentage point increase in the share of a country’s population exposed to high temperature shocks will increase its saving rate by 0.03 percentage points. This effect is persistent. Additionally, the rise in saving rates is more pronounced in Asia, and in regions with larger high temperature shocks variability (e.g., Australia) and in regions with fast economic growth. More specifically, high temperature shocks can cause savings to rise by strengthening precautionary incentives and changing demographic structures. The findings shed light on how climate change can affect the macroeconomy.