Inequality and growth impacts of climate change—insights from South Africa *

Abstract

Abstract The impact of climate change on economic growth has been the subject of numerous studies in recent years, with macro-econometric analyses estimating the effect of rising temperatures on gross domestic product (GDP) growth rates at the country-level. However, the distributional impact of warming on inequality and poverty at the micro-level remains relatively unexplored. In this paper, we investigate the relationship between temperature and inequality in South Africa at the national and sub-national level. Our analysis reveals a significant ∪ -shaped relationship between temperature and inequality indices, with inequality lowest at moderate temperatures (11 ∘C–18 ∘C) and increasing sharply as temperatures increase. We find that the optimal temperatures are lower for inequality measures than for income levels. This indicates that substantial increases in inequality are expected at higher temperatures compared to growth impacts. This effect is particularly noticeable for the poorer segments of the population, whose productivity and wages decline as temperatures increase, while the impact on the richer segments is less significant due to their greater adaptive capacity. In terms of mechanisms, we find that agricultural households are more likely to experience an increase in inequality due to warming. Our findings suggest that global warming has two adverse effects on hot countries: reducing average growth and increasing inequality. We compare the outcomes of the moderate RCP6.0 scenario to a reference scenario without warming and find that by the end of the century, the Gini coefficient in South Africa is expected to increase by 3–6 points, resulting in a potential welfare loss of approximately 50% when combined with the impact of warming on GDP (which alone can reach up to 43% by 2100 in South Africa). Our findings highlight the importance of investigating the distributional effects of climate change at the micro-level, particularly in low- or middle-income countries where vulnerable populations are more susceptible to its impacts.