Assessing the economic damages of climate change: the role of investment versus consumption

Produced by: 
London School of Economics
Available from: 
September 2022
Paper author(s): 
Gregory Casey
Stephie Fried
Matthew Gibson
Environmental Economics

Climate change will have a significant impact on macroeconomic outcomes in developed countries. As it will affect both the supply of and demand for construction, much of this impact will come through the construction sector. On the supply side, much construction work occurs outdoors, implying that worker productivity will decrease in the presence of extreme heat. On the demand side, climate change will alter the frequency and intensity of storms and increase the rate that they destroy structures, creating the need to rebuild. In our ongoing work, we combine theory and empirics to project future impacts of climate change in the United States. Focusing on the supply of construction, we find that future changes in climate will reduce the size of the capital stock by about five and a half per cent in 2200 and reduce aggregate consumption by about one and three quarters per cent, relative to a world without climate change. We also find evidence that existing methods understate the economic impacts of climate change in the US, because they downplay the effect of climate change on capital accumulation and economic growth.


Research section: 
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