Temperature shock and economic growth: does spillover effect hurt more?
In a trade-connected world, an adverse impact on economic growth on account of temperature shock in one economy may have a spillover effect on other economies. The current study quantitatively evaluates the impact of temperature shock on economic growth, during 1971--2019 for 168 economies, through direct and spillover channels. The findings indicate that, while a temperature shock engenders an overall adverse effect on economic growth of all economies, only tropical economies experience a direct adverse effect, which is then transmitted to their non-tropical trade partners. The spillover effect is significant and more substantial for non-tropical economies than their direct effect. Among the sectors, the non-agriculture sector is sensitive to the spillover effect. Finally, the overall adverse effects on poor and rich economies hinge upon the direct and spillover effects, respectively. In our analysis, except for rich tropical economies, all experience an overall adverse effect.
