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Temperature and quarterly economic activity: panel data evidence from Mexico

Published online by Cambridge University Press:  07 April 2025

Jesús Arellano-González Open the ORCID record for Jesús Arellano-González [Opens in a new window]  and
Miriam Juárez-Torres
Jesús Arellano-González*
Affiliation:
General Directorate of Economic Research, Banco de México, Mexico City, Mexico
Miriam Juárez-Torres
Affiliation:
General Directorate of Economic Research, Banco de México, Mexico City, Mexico
*
*Corresponding author: Jesús Arellano-González; Email: [email protected]
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Abstract

We estimate the effect of temperature on the economic activity of Mexico utilizing 42 years of quarterly panel data of economic growth at the state level. Our findings elicit a concave relationship between economic growth and temperature that is maximized at around 20°C. Temperatures below or above this level are associated with lower growth rates. Temperature affects aggregate economic activity mainly through the effect it has on the growth of the primary and secondary sectors. In addition, the estimated sensitivity of economic growth to temperature has not decreased within our sample period which indicates that adaptation to climate change has been limited. When combining our panel estimates with temperature projections by the year 2100, our results suggest that quarterly economic growth might be reduced by 0.4 percentage points, on average, under an intermediate scenario of climate change with reductions as large as 1.0 percentage point during the spring and summer quarters.

Keywords

climate changeeconomic growthpanel datatemperature

JEL classification

Q54: Climate • Natural Disasters and Their Management • Global Warming R11: Regional Economic Activity: Growth, Development, Environmental Issues, and Changes Q51: Valuation of Environmental Effects O44: Environment and Growth
Type
Research Article
Information
Environment and Development Economics , First View , pp. 1 - 21
Copyright
Copyright © The Author(s), 2025. Published by Cambridge University Press

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