The impact of climate change on economic output across industries in Chile

Conclusions and policy implications Based on annual region-industry panel data for the period 1985 to 2017, our study finds that climate change had little effect on the different sectors of economic activity in Chile over the last 35 years. We found a statistically significant negative effect of climate change in Chile, with the channel coming from higher temperatures rather than fluctuations in precipitation. We find that high temperatures in the summer season (January to March) had a negative impact on the Agriculture-Silviculture and Fishing sectors. Furthermore, by separating the weather at a monthly level, we find that it is high temperature in January in particular, which causes the strongest negative impact. Higher temperatures in January may also cause some deterioration of activity for the Construction and EGA (Electricity, Gas, and Water) sectors. However, since Agriculture-Silviculture and Fishing represent just 4% of GDP and summing the sectors of Construction (6.8% of GDP) and Electricity, Gas, and Water (4.0% of GDP), the analysis shows that 85% of the economic activity in Chile was not affected by climate change and that such effect was limited to either the summer season (January to March) or even just a single month (January). We also find that higher temperatures in some seasons, such as the Spring, can have a posi- tive impact on economic growth, which confirms previous results found for the USA [13]. For instance, Agriculture is positively affected by the temperature increases during the month of

November. If we consider the point estimates for all the model coefficients across every month (whether the coefficients are statistically significant or not), then each additional Celsius degree of temperature decreases GDP by -8.8% in Fishing, -1.9% in Mining and -0.7% in the Home property sector, but it shows a positive impact on the output of other sectors, including Agriculture. If one considers just the statistically significant coefficients, then each Celsius degree of temperature decreases GDP by -3% in Agriculture, -8.8% in Fishing, -2.2% in Manufacturing, -3.9% in Energy-Gas-Water, -0.3% in Construction and -0.7% in Commerce, but it still has a positive impact on several other sectors such as Mining, Finance and Personal Services. Unfortunately, extreme weather is often associated with a single month or even shorter periods, therefore the unavailability of regional-industry GDP data at a quarterly or monthly frequency makes statistical identification harder and casts some uncertainty on the interpretation of our findings. We then use our model to present several projections of the impact of climate change on the GDP of each industry and the total national GDP by 2050 and 2100. These projections con- sider the average of the global climate paths published by the United Nations [14, 15], which are widely used in climate stress tests [34]. Over time, the fraction of GDP represented by the sectors economically affected by climate change falls, with Agriculture and Fishing almost dis-

appearing in terms of their weight on the GDP, and this limits the negative impact of climate change on GDP even as global temperatures become worse. The stress test exercises are robust to using either the 2014 or the 2021 scenarios of the IPCC. These projections are very sensitive to whether we consider all the model’s coefficients, only the statistically significant coefficients, or just the negative statistically significant coeffi- cients (that is, ignoring potential positive effects of climate change). Considering all the mod- el’s coefficients we obtain a large and positive impact of climate change on the Chilean GDP level, with a range between +9.8% and +26.% in 2050 and between +36% and 738% by 2100. Note, however, that this positive impact of climate change depends on statistically insignificant coefficients and also on fixed coefficients that do not consider that its effects may change over time. Using only the model’s statistically significant coefficients, we obtain an impact on the Chilean GDP level between -2.3% and +0.4% in 2050 and between +3.2% and +193.2% in 2100. The reason why some increases in temperature can cause increases in GDP is because PLOS ONE The impact of climate change on economic output across industries in Chile PLOS ONE | https://doi.org/10.1371/journal.pone.0266811 April 28, 2022 17 / 21