The Unassuming Economist

From a paper by Naveen Kumar & Dibyendu Maiti:

“This paper examines the understudied relationship between anthropogenic global warming and wealth inequality, two defining challenges of the twenty-first century, by focusing on the impact of temperature on subnational wealth inequality across 1000 regions worldwide, using data from the Global Data Lab spanning the period from 1992 to 2021. Building on earlier climate-economy studies, this paper estimates heterogeneous parameter models under a common factor framework, which addresses econometric challenges of heterogeneous slopes, cross-sectional spillover, unobserved common factors, and explicitly allows the temperature effect on wealth to differ across subnational regions. Our preferred specification estimates provide suggestive evidence that a 1 C rise in temperature is associated with a modest increase in wealth inequality, measured by Gini coefficients, approximately 0.54 units. The effect of precipitation on wealth inequality remains unclear. Second, the results suggest that poorer and hotter regions, predominantly located in the Global South, are adversely affected by temperature-induced wealth inequality. Third, we empirically identify two key plausible channels among others through which temperature worsens wealth inequality: (i) health and education-induced reduction in labor productivity, (ii) worsening gender equality. Our findings are consistently robust across alternative specifications, datasets, and estimation strategies. The evidence suggests that climate change will significantly shape the trajectory of future global inequality and poses serious challenges for sustainable development under business as usual emission scenarios.”