By Ericka Osses n nClimate change presents growing threats to global economic stability by undermining labor efficiency, altering investment patterns, and increasing uncertainty in long-term planning. As a 2025 Summer in the Field Fellow, I examined the macroeconomic impacts of climate change by integrating climate variables into an economic model at Boston University’s computer lab. n nThis interdisciplinary method enhances understanding of environmental challenges and produces empirical data that can guide sustainable economic strategies. The findings also form the foundation of Chapter 2 of my doctoral research. n nTo analyze the climate-productivity relationship, it’s essential to understand conventional measures of economic output and its drivers. Burke et al. (2015) propose that GDP can be modeled using a production function based on two primary inputs: n nCapital—infrastructure, machinery, buildings, and technology used in production. n nLabor—human effort, both physical and cognitive, applied to economic activities. n nI extend this model by incorporating ecosystem services, which include natural benefits such as agricultural yields, tourism potential, and climate regulation that underpin economic functions. n nClimate change can influence labor, capital, and these ecological systems. To assess these effects, I compiled data on GDP (in millions of constant US dollars), capital (in millions of US dollars), labor (in millions of people), and gross primary production (GPP, in kilograms of carbon per square meter per year) for 114 countries from 2000 to 2017. n nFirst, I evaluated how temperature affects labor and capital productivity by testing four versions of the production function: a baseline model using raw labor and capital inputs, and three alternatives where labor per capita is divided by (1) temperature, (2) temperature squared, and (3) the natural logarithm of temperature. Forecast accuracy was compared across models. n nResults show that dividing labor by temperature improves predictive accuracy over the baseline, indicating that higher temperatures reduce labor efficiency. In contrast, no modification to capital inputs enhanced accuracy, suggesting capital productivity remains largely unaffected by heat. n nThis implies human work is more vulnerable to rising temperatures than physical or technological assets. This sensitivity likely stems from direct exposure to extreme heat, which can impair concentration, endurance, and overall performance. n nNext, I isolated the impact of temperature and GPP changes on GDP using three simulation scenarios: n nLabor Productivity Scenario: observed temperature changes, GPP held at national averages. n nEcosystem Services Scenario: temperature held constant, GPP varies as observed. n nCombined Scenario: both temperature and GPP vary as recorded. n nEach scenario was compared to a baseline where both variables remain at their historical means. The average percentage deviation from the baseline was calculated. n nThe Labor Productivity Scenario (Figure 1) shows higher temperatures generally reduce GDP, with Finland, Norway, and Estonia facing the largest declines, while Rwanda, India, and New Zealand see minor improvements. n nFigure 1: Labor Productivity Model n nThe Ecosystem Services Scenario (Figure 2) reveals varied national outcomes. GPP tends to decline in low-latitude regions, reducing economic output, while higher-latitude nations experience GPP increases. n nFigure 2: Ecosystem Services Model n nThe Combined Scenario (Figure 3) suggests climate change slightly boosts economic activity in developed nations but hampers growth in developing countries. Canada, Norway, and Qatar show modest gains, whereas Sudan, Kazakhstan, and Ukraine face economic setbacks. n nFigure 3: Combined Model n nCollectively, these findings indicate that climate change affects the global economy primarily through labor productivity and ecosystem services. Recognizing these mechanisms is crucial for crafting policies that promote equitable and sustainable development. Integrating ecological and climatic factors into economic models allows for a more holistic understanding of growth and resilience, where planetary health directly influences financial stability and human welfare. n nIt is important to note these results are preliminary. Ongoing work will project climate impacts on economic activity through the year 2100. This research aims to deepen our understanding of climate-economy interactions and identify actionable steps to build a more just, resilient, and sustainable future. n
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Summer in the Field: How Does Climate Change Affect Economic Productivity? A Global Perspective from 2000-2017
By Ericka Osses n nClimate change poses significant risks to the global economy by affecting labor productivity, influencing investment decisions and adding uncertainty to long-term planning. During my time as a 2025 Summer in the Field Fellow, I quantified the macroeconomic consequences of climate change across countries by working in the computer lab at Boston University. n nBuilding on this work, I added climate variables to an economic model. This interdisciplinary approach helps with understanding climate challenges and generates empirical evidence that can support more sustainable economic planning. In addition, this analysis formed the basis of Chapter 2 of my doctoral dissertation. n nTo explore the relationship between climate and productivity, it is important to understand how economic productivity is traditionally measured and what drives it. Burke et al. (2015) argue that economic output can be simulated by a production function that represents two factors: n nCapital, the set of goods and infrastructure (machinery, buildings, technology) that are used to produce other goods and services. n nLabor, referring to human effort (both physical and mental) dedicated to production. n nI expand the traditional two-factor production function by including ecosystem services, which are benefits provided by natural ecosystems that support economic activity, such as agricultural productivity, tourism and climate regulation. n nClimate change may affect labor, capital and ecosystem services. To investigate each, I have compiled observations for economic output, as measured by gross domestic product (GDP), in millions of constant US dollars; capital, measured in millions of US dollars; labor, measured in millions of people; and gross primary production (GPP), measured in kilograms of carbon per square meter per year for 114 countries between 2000 and 2017. n nFirst, I investigate the effect of temperature on the productivity of capital and labor by estimating four specifications for a production function: a base case in which the raw measures of labor and capital appear on the right-hand side and three alternative specifications, in which labor per capita is (1) divided by temperature, (2) divided by temperature squared and (3) divided by the log of temperature. I compare the out-of-sample forecasts generated by each of the three alternative specifications to the base case using a test of accuracy. n nThe results indicate that the specification that divides labor by temperature increases accuracy relative to the base case, which suggests that higher temperatures reduce labor productivity. Conversely, none of the alternative specifications for capital increase accuracy relative to the base case, which suggests that higher temperatures do not reduce the productivity of capital. n nThese results suggest that labor is more sensitive to rising temperatures than capital. Put simply, human work is more affected by heat than machines, infrastructure or technology. This may be because people are directly exposed to environmental conditions and their performance declines under extreme heat. n nIn a second step, I isolate the effect of changes in temperature and gross primary productivity on GDP. To do so, I simulate the model using three scenarios: n nLabor productivity scenario in which temperature changes as observed, but GPP is held at the sample mean for each nation; n nEcosystem services scenario in which temperature is held at its sample mean for each nation and GPP changes as observed; n nCombined scenario in which both temperature and GPP change as observed. n nEach of these scenarios is compared to a base case in which temperature and GPP is held at its sample mean. I compute the average percent difference between the base case at each of the three scenarios. n nThe Labor Productivity Scenario (Figure 1) indicates that a higher temperature generally reduces GDP. Finland, Norway and Estonia suffer the greatest losses while Rwanda, India and New Zealand enjoy small gains. n nFigure 1: Labor Productivity Model n nThe Ecosystem Services Scenario (Figure 2) indicates that the effects of changes in GPP vary among nations. GPP generally declines at low latitudes, which reduces GDP, while GPP increases at higher latitudes. n nFigure 2: Ecosystem Services Model n nLastly, the Combined Scenario (Figure 3) indicates that climate change tends to increase economic activity slightly in developed countries while climate change tends to reduce economic activity in developing nations. For instance, Canada, Norway and Qatar show mild gains, whereas Sudan, Kazakhstan and Ukraine experience losses. n nFigure 3: Combined Model n nTogether, these results suggest that climate change affects the global economy via labor productivity and ecosystem services. Understanding these dynamics is essential for designing policies that promote more equitable and sustainable modes of economic development in a changing climate. By integrating temperature and ecological productivity into economic analysis, we can move toward a more comprehensive view of growth and resilience—one in which financial stability and human well-being depend on the health of our planet. n nFinally, it is important to emphasize that these are preliminary results. In ongoing research, I will forecast how changes in climate may affect economic activity through 2100. Through this ongoing research, I aim to contribute to a deeper understanding of how climate change affects our economies and what actions we can take today to build a more just, resilient and sustainable future. n n*