A Panel Data Approach to Estimating the Impact of Climate Adaptation on the Temperature-Labor Productivity Relationship

Abstract

As climate change is expected to intensify in the coming years, understanding and quantifying the relationship between climate, weather, and economic outcomes is becoming increasingly essential. This thesis employs a high-dimensional fixed effects (HDFE) model to estimate the impact of temperature on sector-specific labor productivity and quantifies the role of adaptation strategies in mitigating these adverse effects. The findings reveal that countries with a high per capita air conditioning stock can effectively mitigate the negative impacts of rising temperatures across many economic sectors. In contrast, countries with limited access to such technologies experience more significant declines in labor productivity due to temperature shocks. Furthermore, the diminishing returns of per capita air conditioning stock on the attenuation of the temperature effect on labor productivity suggest a saturation effect.