By Sebastian Acevedo, Mico Mrkaic, Evgenia Pugacheva, and Petia Topalova

September 27, 2017

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The Earth’s temperature is rising. This will shape the economic future of communities across the globe (photo: Leolintang/iStock by GettyImages).

The Earth’s temperature is rising and its climate is changing. The increase in temperatures will shape the economic future of communities and countries across the globe. All countries will feel the direct negative effects from unmitigated climate change. But as our research in Chapter 3 of the October 2017 World Economic Outlook shows, the effects of higher temperatures will not be equal everywhere and the brunt of the adverse consequences will be borne by those who can least afford it—low-income countries. 

Warming at an unprecedented rate

Over the past four decades, the global average surface temperature has increased at a pace that is unprecedented in the past 20,000 years. And temperatures are set to rise further, at a scale very much dependent on our ability to restrain greenhouse gas emissions, the key human driver of global warming. Extreme weather events, such as heat waves, droughts, and floods, are likely to become more frequent, and sea levels will rise.

Hurting the poorest the most

The Earth’s warming affects countries very unequally. Even though low-income countries have contributed very little to greenhouse gas emissions, they would bear the brunt of the adverse consequences of rising temperatures, since they tend to be situated in some of the hottest parts of the Earth.

Analyzing historical patterns across 180 countries over the past 65 years reveals a non-linear relationship between temperature and growth, confirming previous findings by Burke, Hsiang, and Miguel (2015) in an expanded database. This relationship implies that in countries with a relatively hot climate, such as most low-income countries, a rise in temperature lowers per capita output in a long-lasting manner.

Our estimates suggest that a 1°C increase in temperature in a country with an average annual temperature of 25°C – such as, for example, Bangladesh, Haiti, or Gabon – would reduce per capita output by up to 1.5 percent, a loss that persists for at least 7 years. If no global efforts are made to curb emissions, the resulting projected increase in temperature would erase close to one-tenth of the per capita output of the median low-income country by the end of the 21st century, relative to a scenario of unchanged temperature.

Higher temperatures hurt economic activity in hot countries through many channels. They lower agricultural output, reduce the productivity of workers exposed to heat, slow investment, and damage health. Close to 60 percent of the world’s population currently resides in countries where an increase in temperature would likely lead to such pernicious effects. By the end of the 21st century, this number is projected to rise to more than ¾ of the global population.

So what can these countries do to reduce the economic burden of rising temperature?   

Domestic solutions can help – but only to some extent

Sound domestic policies and institutions, and development in general can partially curb the damage from weather shocks. Although causal interpretation is difficult, our analysis suggests that countries with policy buffers – such as lower public debt and flexible exchange rates – tend to experience somewhat smaller output losses from temperature shocks in the short run.

By the same token, countries with policy and institutional settings that make it easier for labor and capital to move across economic sectors and geographic regions and that foster development in general—such as better access to finance, high-quality infrastructure, and stronger institutions—tend to recover somewhat faster from temperature shocks.

There are also examples of successful adaptation strategies to changes in climate. For instance, Ethiopia’s Productive Safety Net Program combines well-targeted support to affected households with environmental and infrastructure projects and programs to diversify income sources. The adoption of appropriate technology, such as air conditioning, can limit the productivity and health consequences from rising temperature. Investment in climate-smart infrastructure, such as the dual-purpose “smart” tunnel in Kuala Lumpur, Malaysia, can also enhance resilience to various weather risks.

Needed: A global solution

But putting in place the right policies and making the investments necessary to cope with climate change will be challenging for many low-income countries. They have huge spending needs and limited resources.

Even when in place, domestic policies alone cannot fully insulate these countries from the consequences of climate change. Higher temperatures will push the biophysical limits of ecosystems, potentially triggering more frequent natural disasters, fueling migration pressures and conflict risk. The cross-border spillovers from these impacts of climate change in vulnerable countries could be very sizable, and advanced economies will not be immune either.

The international community must play a key role in supporting low-income countries’ efforts to cope with climate change. Advanced and emerging market economies have contributed the lion’s share to actual and projected warming. Hence, helping low-income countries cope with its consequences is both a moral duty and sound global economic policy that helps offset countries’ failures to fully internalize the costs of greenhouse gas emissions.

The world will increasingly feel direct negative effects from unmitigated climate change, through more frequent natural disasters, rising sea levels, and loss of biodiversity. Only a global effort to contain carbon emissions to levels consistent with much lower increases in temperature than are now projected can limit the long-term risks. Climate changes threatens not only low-income countries – it threatens all countries.