Climate Econometrics

Abstract

Identifying the effect of climate on societies is central to understanding historical economic development, designing modern policies that react to climatic events, and managing future global climate change. Here, I review, synthesize, and interpret recent advances in methods used to measure effects of climate on social and economic outcomes. Because weather variation plays a large role in recent progress, I formalize the relationship between climate and weather from an econometric perspective and discuss the use of these two factors as identifying variation, highlighting trade-offs between key assumptions in different research designs and deriving conditions when weather variation exactly identifies the effects of climate. I then describe recent advances, such as the parameterization of climate variables from a social perspective, use of nonlinear models with spatial and temporal displacement, characterization of uncertainty, measurement of adaptation, cross-study comparison, and use of empirical estimates to project the impact of future climate change. I conclude by discussing remaining methodological challenges.