Editor’s note: This post is part of a series showcasing Barcelona School of Economics master projects. The project is a required component of all BSE Master’s programs.
The rise in global temperatures has been a growing source of concern for policy makers given its potential impact for sustainable economic activity.
This paper explores the effects of a temperature shock on the distribution of economic growth in Colombia. Specifically, we focus on the impact of these shocks on economic risks.
Our findings suggest the existence of asymmetries on the lower and upper tail of the distribution, indicating that higher temperatures leads to less optimistic outcomes for GDP growth. We also found negative and significant effects of temperature shocks on non-agricultural sectors.
The results are obtained using quantile regressions under the growth-at-risk (GaR) approach and local projections.
Temperature shocks on climate-exposed sectors
The analysis of the effects of temperature shocks on climate-exposed sectors suggest that several components of GDP are affected by increased heating.
- Manufacturing activity seems to be negatively affected after a temperature shock, specially on the upper tail.
- The entire distribution of construction shows a strong response to temperature shocks, suggesting that labor productivity could be severely affected by heat stress in this sector.
- The generation of electricity by hydro-powers in Colombia could be explaining the negative effects on the energy sector after an increase in temperatures.
- Results for agriculture are not statistically significant, possibly capturing the national attempt to increase resilience of this sector in Colombia.
Protecting Colombia’s economy from the impacts of global warming
Colombia has taken some steps in the mitigation and adaptation of its economy to rising temperatures. Especially, it has adopted the National Adaptation Program, whose principal objective is to reduce the country’s vulnerability and increase its response capacity to the impacts of global warming on economic growth, especially for the agricultural sector.
The findings for this sector and the mitigating measures adopted suggest that these efforts could reduce the country’s vulnerability to rising temperatures. However, the country should take complementary strategies with a broader scope of sectors such as energy and construction, that appear to be more vulnerable to warming.
For example, in the energy sector some of 18 the adaptation measures that could be taken are optimization of the conventional energies and improvement of efficiency and diversification of energy sources and promotion of renewal energy.
Further analysis about the channels and causes of the effects of temperature shocks on GDP growth could be done for a regional level. The heterogeneity on temperature levels and on the reliance on climate-exposed sectors across different regions in Colombia could imply differential effects depending the geographical area analyzed.
Connect with the authors
Camila Camilo ’22 is a Division Chief at the Central Bank of the Dominican Republic in Santo Domingo, DR.
Angie Rozada ’22 is an Expert in the Financial Stability Department at Banco de la República (Central Bank of Colombia).
Carlos Sanz Pérez ’22 is a Trainee at the European Central Bank in Frankfurt, Germany.
Author info is current as of March 2023.
About the BSE Master’s Program in Macroeconomic Policy and Financial Markets