Temperature variability and long-run economic development

This study estimates causal effects of temperature variability on economic activity. For identification I use a novel research design based on spatial first-differences. Economic activity is proxied by nightlights. I distinguish between day-to-day, seasonal, and interannual variability and find that the type of variability matters. The results suggest an economically large and statistically significant negative effect of day-to-day variability on economic activity at most temperature levels. Regarding seasonal variability, I find a smaller but also negative effect. The estimated effect of interannual variability is positive at low and negative at high temperatures. These effects are robust, they can be identified in urban and rural areas, and they cannot be explained with the spatial distribution of agriculture. The results draw attention to the effect of climate variability, which is projected to change but has so far been mostly overlooked in assessments of the impacts and costs of climate change.