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The Impact of Global Warming on the Global Macroeconomy

While economics and climate change have long been considered very distinct fields, in the coming decades a synthesis between the two may be necessary when creating macroeconomic models. The worlds foremost global climate change authority, the UN’s Intergovernmental Panel on Climate Change, is in the process of finalizing the most comprehensive assessment of climate change in over seven years. Headlining this report is a forecast that world gross domestic product could shrink by up to 2% as a result of climate change if temperatures rise by the predicted 2.5 C. The driving force behind this GDP decrease is the major loss in rice, wheat, and maize production that will occur in major breadbasket regions if temperatures continue to rise. The report further estimates that the cost of adapting to this climate could range from $70 billion to $100 billion a year for developing countries alone. Particularly hard hit will be countries developing countries in southeast asia that are not only very dependent on rice production as a source of food, but are also very vulnerable to land loss due to rising sea levels.

These developments bring up an interesting question for economists. Should the advanced models that are being created to forecast global economic growth begin to incorporate the negative economic realities that climate change will bring. Surely a growing global population with exponential growth in technological capacity will continue to increase global gross production. However, this growth may coincide with a retraction in global output as economies struggle to deal with losses in arable land, rising sea levels that reclaim valuable real estate, and melting glaciers that will considerably raise water costs globally.