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Global temperature, R&D expenditure, and growth

Global temperature, R&D expenditure, and growth
Global temperature, R&D expenditure, and growth
We shed new light on the macroeconomic and financial effects of rising temperatures. In the data, a shock to global temperature dampens research and development (R&D) expenditure growth. This novel empirical evidence is rationalized within a stochastic endogenous growth model. In the model, temperature shocks undermine economic growth via a drop in R&D expenditure. We examine three theoretical channels of the negative R&D expenditure effect of rising temperatures: the patent obsolescence channel, the labor productivity channel, and the capital quality channel. Temperature risk generates welfare costs of 93.14% of lifetime utility in this benchmark model. Moreover, the government can offset these welfare costs by subsidizing investment with 7.04% or R&D expenditure with 3.81% of total public spending, respectively. Alternatively, it can levy a lump-sum tax on households which finances 6.90% of total public spending, reduce corporate taxes by 3.62 percentage points, or increase labor taxes by 2.80 percentage points.
Capital quality, Endogenous growth, Global temperature, Labor productivity, Patent obsolescence, R&D expenditure, Welfare costs
0140-9883
105608
Donadelli, Michael
9836edb9-15f5-4bbc-9f57-cf4636285390
Grüning, Patrick
2d5afc6e-6558-46f6-8872-38220f389a64
Jüppner, Marcus
7c2c1e89-5085-44e1-a828-f0d161996168
Kizys, Renatas
9d3a6c5f-075a-44f9-a1de-32315b821978
Donadelli, Michael
9836edb9-15f5-4bbc-9f57-cf4636285390
Grüning, Patrick
2d5afc6e-6558-46f6-8872-38220f389a64
Jüppner, Marcus
7c2c1e89-5085-44e1-a828-f0d161996168
Kizys, Renatas
9d3a6c5f-075a-44f9-a1de-32315b821978

Donadelli, Michael, Grüning, Patrick, Jüppner, Marcus and Kizys, Renatas (2021) Global temperature, R&D expenditure, and growth. Energy Economics, 104, 105608, [105608]. (doi:10.1016/j.eneco.2021.105608).

Record type: Article

Abstract

We shed new light on the macroeconomic and financial effects of rising temperatures. In the data, a shock to global temperature dampens research and development (R&D) expenditure growth. This novel empirical evidence is rationalized within a stochastic endogenous growth model. In the model, temperature shocks undermine economic growth via a drop in R&D expenditure. We examine three theoretical channels of the negative R&D expenditure effect of rising temperatures: the patent obsolescence channel, the labor productivity channel, and the capital quality channel. Temperature risk generates welfare costs of 93.14% of lifetime utility in this benchmark model. Moreover, the government can offset these welfare costs by subsidizing investment with 7.04% or R&D expenditure with 3.81% of total public spending, respectively. Alternatively, it can levy a lump-sum tax on households which finances 6.90% of total public spending, reduce corporate taxes by 3.62 percentage points, or increase labor taxes by 2.80 percentage points.

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Global_Temperature_and_R_D - Accepted Manuscript
Restricted to Repository staff only until 26 October 2024.
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More information

Accepted/In Press date: 27 September 2021
e-pub ahead of print date: 14 October 2021
Published date: December 2021
Keywords: Capital quality, Endogenous growth, Global temperature, Labor productivity, Patent obsolescence, R&D expenditure, Welfare costs

Identifiers

Local EPrints ID: 453623
URI: http://eprints.soton.ac.uk/id/eprint/453623
ISSN: 0140-9883
PURE UUID: da136137-f525-417d-9b31-6be8c2b70dc6
ORCID for Renatas Kizys: ORCID iD orcid.org/0000-0001-9104-1809

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Date deposited: 20 Jan 2022 17:39
Last modified: 28 Apr 2022 02:27

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Contributors

Author: Michael Donadelli
Author: Patrick Grüning
Author: Marcus Jüppner
Author: Renatas Kizys ORCID iD

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