Global Weather Sensitivity: A Comparative Study - albertotroccoli.org

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can make this adaptation extremely costly. In addition to the clear advantages of managing weather risk at a small scale, weather hedging could have significantly beneficial effects on total global output. Our results in Table 4 suggest that a comprehensive weather hedging strategy for all sixty-eight countries included in this analysis could add approximately $258 billion to global output per year. This is likely an underestimate of the potential growth due to a comprehensive global weather hedging strategy. First, this number reflects only the sixty-eight countries included in the analysis, which account for just over half the world’s GDP. Second, this method assumes that countries hedge all of their CAR for each sector and reinvest in that sector at historical growth rates. It is unreasonable to expect investors will invest in industries with very poor prospects for growth or negative growth— for example, the agricultural industry in South Africa grew at an average rate of -4%. Hedging weather risk will likely allow investors to divert resources into sectors and industries with greater risk, and therefore greater growth opportunities. In countries where financial markets are weak, the introduction of weather risk management products might help the development of local credit channels, which could significantly boost economic growth. Finally, this paper suggests a number of directions for future research on global weather sensitivity. Two key priorities in this process should be developing reliable databases of historical weather and economic data around the world, and developing a reliable model to measure the weather sensitivity of different businesses, sectors, countries, and regions. This paper’s reliance on elasticity data from the US is a clear bias that can be addressed in future work. However, current limitations on the quality and scope of data around the world make this sort of work extremely challenging. Gathering good data is a prerequisite for more detailed analysis of world weather sensitivity. Once the data 18
is available, researchers should explore new models for measuring the weather impact on the economy. More dynamic models that allow for probabilistic relationships between weather and output might better reflect the uncertainties of weather patterns than static, historical models. This paper is a first step in that direction. 6 Acknowledgments A special thanks to Peter Larsen for providing helpful advice and insight on the subject of weather sensitivity. Without his groundbreaking work on the weather sensitivity of the United States, this paper would not have been possible. 19
Page 1 and 2: Global Weather Sensitivity: A Compa
Page 3 and 4: output in 11 sectors using a transc
Page 5 and 6: and climate response functions, mos
Page 7 and 8: least 10 years of data history were
Page 9 and 10: around one, with higher values (mea
Page 11 and 12: seasonal and regional trends. To en
Page 13 and 14: 4 Results and Discussion 4.1 Weathe
Page 15 and 16: the United Arab Emirates, Kuwait, a
Page 17: the most from weather hedging, and
Page 21 and 22: [9] Mendelsohn, R, Dinar, A, Willia
Page 23 and 24: Country SS w/ Corrections Rank SS w
Page 25 and 26: Table 2: Range of Weather Sensitivi
Page 27 and 28: Rank Country Weather Sensitivity (U
Page 29 and 30: Rank Country Weather Sensitivity (U
Page 31 and 32: Country Capital At Risk Expected Gr
Page 33 and 34: Country Capital At Risk Expected Gr
Page 35 and 36: Country 1 2 3 4 5 6 7 8 9 Chile 6%
Page 37 and 38: Country 1 2 3 4 5 6 7 8 9 Switzerla
Page 39 and 40: Country CV CDD CV HDD CV P recip Ge
Page 41 and 42: Table 9: Corrections Data Country Y
Page 43: Country Yield/Hectare Correction To

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