introduction
Climate change is a worldwide phenomenon that affects every nation. Since the Industrial Revolution, increased economic development has ushered humanity into a new age of higher wealth levels, educational outcomes, and prosperity. Since the 1960s, world GDP per person has increased from roughly 3,600USD per person to 10,500USD per person (world bank, n.d). In turn, this saw higher life expectancies, particularly since the later phases of the industrial revolution, where estimates show that life expectancy had increased from an average of 29 to 73 years old (Roser Ortiz-Ospina and Ritchie, 2013).
However, continuous economic growth coupled with high usage of fossil fuels had driven towards large and significant rises in Carbon Dioxide levels well beyond historical highs over the past 800,000 years or so of Carbon Dioxide level estimates (nasa, n.d). The consequences of such a rise in carbon dioxide levels have led towards global temperature increases, warming of oceans, shrinking ice sheets, glacial retreats, decreased snow cover, sea-level rise, declining arctic sea ice, extreme weather events, and ocean acidification (nasa, n.d).
Bahrain is particularly vulnerable to the effects of climate change. This includes sea level rises, threats towards public health via increased exposure to thermal extremes, changing disease vector dynamics, a potential increase of food-related and waterborne infections, changes towards biodiversity, fishing-stock levels, coral reefs, mangroves, date plantations, and other essential ecosystems (Supreme Council for the Environment, n.d).
While there is significant knowledge of the long-term effects of climate change on Bahrain, there is little discussion or estimations of the economic cost and damages associated with climate change. Research by Oxford Economics suggests a nonlinear relationship between economic growth and rising temperatures worldwide. The growth relationship is positive up to a point just under 15C, while above 15C sees a negative association with temperature changes (Livermore, 2021).Given that the world is about to warm by around 2.7C by 2100 (CAT, 2021), this indicates that Latin America, Africa, Asia, and the Middle East may experience the most significant decline in GDP growth.
In this article, we will look at a simple relationship between unexpected temperature differences and economic growth. The following section will look at our calculation methods and potential reasons why unexpected temperature differences can be associated with changes in economic growth. The third section will look at the results. Last, the fourth section will look at implications and potential policy recommendations.
Linking Temperature and Economic activity
To understand how temperature and economic activity can be linked, we need first to understand the temperature variations experienced year-round. Bahrain sees cool winters and hot summers, where using our data from September 2009 to March of 2021, we see that January exhibits the coolest average temperatures of 18 degrees, and July and August exhibits the hottest average temperatures of 36 degrees (time and date, n.d).
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We can therefore theorize how temperature may affect economic activity. Given that households and firms expect a given temperature for a given month, they choose the most appropriate way to carry out their economic activity for a given set of weather conditions. For example, a farmer would not grow certain crops that are sensitive to high temperatures in the summer months or that an events company would not set up outdoor events during the summer months. Therefore, economic agents would optimize their economic activity as per the anticipated weather conditions and attempt to smooth out their consumption and investment decisions across various weather conditions. However, if we look at Quarter on Quarter economic growth and compare each quarter's average temperature, it seems that temperature is not linked with economic growth.
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As a result, it appears that economic growth is affected by factors other than temperatures. So then, how can temperatures affect economic growth? Given that economic agents expect weather conditions and plan their types of economic activity accordingly, unexpected weather conditions would change their consumption and investment habits, i.e., the unexpected difference in temperatures between actual and expected temperatures. Therefore, we can measure in any quarter what we can refer to as the “temperature gap” as:
Where C(g) represents the temperature gap, C(A) is the actual temperature in that quarter, and C(E) is the expected temperature in a quarter, the average temperature of each quarter throughout the 2009 to 2021 temperature dataset. The expected temperatures for each quarter are:
An example we can show is that if Quarter 1 of 2012 shows an average temperature of 21 C, the temperature gap would be 1 C. When we calculate the temperature gaps across all the different quarters (if any), we then average economic growths for all quarters with “cooler than expected” temperature, “as expected temperatures,” and “warmer than expected temperatures,” where we then make a comparison to see how economic growth behaves in each outcome.
Results of temperature gaps and Economic Growth
Below are the results of temperature gaps and economic growth
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The results indicate that economic growth appears to be higher than average when temperatures are "cooler than expected." When temperatures are "as expected" or "warmer than expected," we see that their economic growth figures are similar, with lower than average economic growth all year round. This indicates that in the case of "as expected" and "warmer than expected" temperature changes, economic agents have already optimized their behaviors as per expected weather conditions. If the weather is hotter than expected, this appears not to affect agents' decisions. When temperatures are “cooler than expected”, economic activity increases due to a favorable "climate shock." However, we also want to look at how much economic growth varies in each of the conditions. Below we look at the ratio between standard deviation to average growth rates.
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We see that “cooler than expected” quarters experience less “volatility” than “warmer than expected” quarters. We can see that the standard deviation is only 1.05 times higher than the average growth in those quarters. In contrast, “warmer than expected” quarters see 2.77 times the deviation as a ratio to average growth in those quarters. This indicates that not only does the Kingdom’s economy perform better under “cooler than expected” conditions, but its growth is also less volatile than that of “warmer than expected” conditions and as expected conditions.
One could argue that the results may be due to the distribution of each event throughout the quarters and that “cooler than expected” temperatures are more likely to appear in cooler quarters such as Q1 and Q4, which may also be reflected in the average growth rates for Q1 across our sample data. For this, we can look at the distribution of the events across each quarter and the percentage of times they occur:
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We see that our “cooler than expected” occurrences appear to be almost evenly distributed between the cooler quarters (Q1 and Q4, with 47% of occurrences) and in warmer quarters (Q2 and Q3, with 53% of occurrences). “As expected,” temperatures predominantly occur in the warmer quarters (with Q2 and Q3 with 70% of occurrences). However, the most interesting is that our “warmer than expected” temperatures occur more in cooler quarters (with Q1 and Q4 with 62.50% of occurrences) than warmer quarters. This indicates that even if cooler quarters were to have higher economic growth, given that a “warmer than expected” quarter is more likely to happen in cooler quarters, this indicates that the lower economic growth is likely to occur in those quarters than warmer ones.
Overall, we see what appears to be an interesting relationship between unexpected temperatures and economic growth, where cooler than expected quarters experience higher than average QoQ GDP growth, and warmer than expected quarters experience lower than average QoQ GDP growth. Furthermore, the results above indicate that if we were to have a “warmer than expected” quarter, this is more likely to occur in cooler quarters (such as Q1 and Q4) rather than in warmer quarters, meaning that this type of unfavorable “climate shock” is likely to reduce growth rates lower than what they should be within their quarters.
There are three main limitations to this analysis. The first one is that our observations are only for a relatively small time period (2009 to 2020) in terms of understanding the effects of climate change on economic outcomes, as generally, the more observations, the more confident we can be about the trends above (especially in the field of climate change where measuring economic effects are done in an incredibly long-timescale). The second limitation is that we cannot compare within quarters with cooler than expected and warmer than expected events across the years as there are too few observations. This will allow us to look at the trend if it holds within different quarters rather than across the different quarters available, removing any potential seasonal trends within quarterly GDP growth. The third limitation is that the results above do not allow us to estimate the association between temperature gaps and GDP growth where if we control for other variables that could affect GDP growth, we can then estimate how much does a 1 C temperature gap affect GDP growth (where potentially, such a relationship may not be statistically significant, thus under such a scenario, this relationship would be considered as false).
Implications and policy recommendations
The implications of the trends above are significant. With climate change, both temperatures are expected to increase, and extreme weather events are likely to increase in the future with further warming of the earth’s climate. This, in turn, will affect Bahrain’s economic growth, where potentially “lower than expected” temperature events may be less likely in the future. Thus the “positive climate shocks” associated with them are less likely to occur. The issue the Kingdom faces is that while its per capita emissions are 7th in the world (Ritchie and Roser, 2020), its total emissions represent less than 1% of all emissions worldwide. This means that even if the Kingdom were to reduce its emissions, it is highly unlikely to impact overall world temperature rises due to excessive carbon dioxide emissions, given the amount is insignificant. However, this does not mean that there are no solutions for preparing and mitigating climate change.
The Kingdom can follow two policy recommendations: the first is adaptation towards a new potential climate reality, and the second is creating and modifying microclimate conditions of the Kingdom. For the first policy recommendation, the Kingdom could look at enacting plans similar to those currently being implemented by small island nation-states most affected by climate change. Those plans surround ensuring that key sectors adapt to new climate realities, ensure that there is good coastal zone management for future anticipated coastal retreat, and ensure food and water security (UNDP, 2010). Furthermore, the need to ensure energy security is also important, emphasizing reducing energy usage via increases in energy efficiency (UNDP, 2010).
The second policy recommendation is to modify and create microclimate conditions. Creating microclimates via the management of local climates has been shown to reduce temperatures by 1.5 to 2C (Van Woesik, 2021). Looking at increasing soil moisture levels and vegetation levels have created favorable surface temperatures and microclimates. Furthermore, modifying microclimates include the reduction of the Urban heat island (UHI) effect, where lack of vegetation, urban materials that absorb solar energy (rather than reflect), urban geometry, and heat generated from human activities (being vehicles, air-conditioning units, buildings, and industrial activities) are significant contributors towards UHI (EPA, n.d). There are several ways of reducing UHI, which include increasing vegetation coverage, using more solar reflective building materials, and moving towards cleaner transportation and electricity generation (where research in Beijing have shown that replacing conventional cars with EVs can reduce the cities temperature by 1 C, and also reduce the usage of AC) (EPA, n.d), (Masson et al., 2014) (Mohdin, 2015).
Using these two strategies may help mitigate the effects of climate change, thus potentially increasing the probability of “lower than expected” temperatures occurring, which would mitigate what appears to be lower economic activity from potentially higher expected and unexpected temperatures. These short-term investments may be able to generate long-term benefits for the Kingdom.
Conclusion
In conclusion, we see that unexpected temperature changes appear to be linked towards changes in economic activity, where “higher than expected” and “as expected” temperatures in a given quarter seems to have lower QoQ economic growth, while “cooler than expected” temperatures in a given quarter appears to have higher QoQ economic growth than average. With a rise in carbon emissions and thus the rise in global temperatures and unexpected weather events, higher temperatures may become not only the new norm but unpredictable swings in temperatures may also be present as a result of climate change, leading towards unexpected temperature changes that in turn, would affect economic growth. As a result, the Kingdom should look into strategies to mitigate the effects of climate change via adapting to potential new climate conditions and creating and modifying existing microclimates that can offset climate change risks regarding temperature changes of the local climate.
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