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Dennis Wesselbaum
 
''Does Temperature affect Income?''
( 2021, Vol. 41 No.1 )
 
 
In this paper, I contribute to the literature on the relationship between temperature and the level of income. I build a panel data set with 198 countries over 36 years. In contrast to the existing literature, I use a Panel Vector autoregression model and identify temperature shocks with volcanic activity. I find that, in line with theory, volcanic activity creates a significant cooling effect. Then, I present estimated impulse response functions and find that the level of log GDP per capita is reduced by about three percent for more than ten years in response to a 1C increase in temperatures. My results support the existence of a direct effect of temperature on income.
 
 
Keywords: Climate Change, GDP, Panel VAR, Temperature
JEL: E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment: General (includes Measurement and Data)
Q5 - Environmental Economics: General
 
Manuscript Received : Jun 09 2019 Manuscript Accepted : Mar 10 2021

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