Financial stability in response to climate change in a northern temperate economy

Climate change will have considerable impact on the global economy. Estimates of the economic damages due to climate change have focused on the effect of average temperature, but not the effect of other important climate variables. Related research has not explored the sub-annual economic cycles which may be impacted by climate volatility. To address these deficits, we propose a flexible, non-linear framework which includes a wide range of climate variables to estimate changes in GDP and project sub-annual economic cycle adjustments (period, amplitude, trough depth). We find that the inclusion of a more robust set of climate variables improves model performance by over 20%. Importantly, the improved model predicts an increase in GDP rather than a decrease when only temperature is considered. We also find that climate influences the sub-annual economics of all but one province in Canada. Highest stressed were the Prairie and Atlantic regions. Least stressed was the Southeastern region. Our study advances understanding of the nuances in the relationship between climate change and economic output in Canada. It also provides a method that can be applied to related economies globally to target adaptation and resilience management.

Kayla Stan, Graham A. Watt, Arturo Sanchez-Azofeifa