Temperature and Income: Reconciling New Cross-Sectional and Panel Estimates

Abstract

It has long been observed that hot countries tend to be poor. A correlation between heat and poverty was noted as early as Charles de Montesquieu (1750) and Ellsworth Huntington (1915), and it has been repeatedly demonstrated in contemporary data (e.g., William D. Nordhaus 2006). Looking at a cross section of the world in the year 2000, national income per capita falls 8.5 percent per degree Celsius rise in temperature (see Table 2 below). In fact, temperature alone can explain 23 percent of the variation in cross-country income today.