Abstract: Global warming is a worldwide and protracted phenomenon with heterogeneous local economic effects. In order to evaluate the aggregate and local economic consequences of higher temperatures, we propose a dynamic economic assessment model of the world economy with high spatial resolution. Our model features a number of mechanisms through which individuals can adapt to global warming, including costly trade and migration, and local technological innovations and natality rates. We quantify the model at a 1° × 1° resolution and estimate damage functions that determine the impact of temperature changes on a region’s fundamental productivity and amenities depending on local temperatures. Our baseline results show welfare losses as large as 19% in parts of Africa and Latin America but also high heterogeneity across locations, with northern regions in Siberia, Canada, and Alaska experiencing gains. Our results indicate large uncertainty about average welfare effects and point to migration and, to a lesser extent, innovation as important adaptation mechanisms. We use the model to assess the impact of carbon taxes, abatement technologies, and clean energy subsidies. Carbon taxes delay consumption of fossil fuels and help flatten the temperature curve but are much more effective when an abatement technology is forthcoming.

Replication Files

Abstract: We study technology diffusion across countries and over time empirically. We find signifficant evidence that technology diffuses slower to locations that are farther away from adoption leaders. This effect is stronger across rich countries and also when measuring distance along the southnorth dimension. A simple theory of human interactions can account for these empirical findings. The theory suggests that the effect of distance should vanish over time, a hypothesis that we confirm in the data, and that distinguishes technology from other flows like goods or investments. We then structurally estimate the model. The parameter governing the frequency of interactions is larger for newer and network-based technologies and for the median technology the frequency of interactions decays by 73% every 1000 Kms. Overall, we document the significant role that geography plays in determining technology diffusion across countries.

Abstract: In this short article we discuss a mechanism that can lead to private innovation by firms even in the presence of perfect competition (see Desmet and Rossi-Hansberg 2011a, where we introduced this logic to analyze development over space).

Abstract: We propose a framework to study the impact of information and communication technology on growth through its impact on organization and innovation. Agents accumulate knowledge to use available technologies and invent new ones. The use of a technology requires the development of organizations to coordinate the work of experts, which takes time. We find that while advances in information technology always increase growth, improvements in communication technology may lead to lower growth and even to stagnation, since the payoff to exploiting available technologies through organizations increases relative to the payoff from developing new innovations.