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Extreme heat causes labour productivity to fall. Supply shortfalls caused by this have an impact on global trade: Less is exported and importers have to accept the losses of affected exporters or switch to other exporters, which causes additional costs. A study by ZEW Mannheim and Frankfurt School of Finance & Management shows for the first time that substantial parts of the trade-related economic damage from heat waves occur in countries that are not directly exposed to the temperature shocks.
The researchers show that in months when a country's average temperature is at least 30° C, exports fall by an average of 3.4 percent – compared to a month when the average temperature was below this threshold. Other definitions of a heat wave also show similar results. Crucial to the extent of export decline due to climate change is the labour intensity of the goods. "In the study, we found that the negative impact of heat on exports is most evident where trade is preceded by labour-intensive production processes," says Dr Daniel Osberghaus, Senior Researcher at the ZEW Research Unit "Environmental and Climate Economics" and co-author of the study. Heat can reduce labour productivity and labour supply, which becomes noticeable in the form of supply declines – especially for labour-intensive products.
Even if the weather extremes occur locally at first, they affect the trade network at the global level. This is because the local decline in supply leads to evasive reactions: "Importing countries try to compensate for supply losses by purchasing goods from third countries. However, this often results in higher costs," says Osberghaus. The researchers found that an average heat wave causes costs of around 360 million US dollars due to declining imports worldwide. "Two-thirds of these costs have to be shouldered by countries that were not directly affected by the heat," says co-author Professor Dr Oliver Schenker of Frankfurt School of Finance & Management.
The economic losses due to climate change will not decrease in the future. Based on a medium climate projection – a scenario of global climate development that is neither too pessimistic nor too optimistic – the researchers calculate the trade losses to be expected from heat waves. For the period 2020-2039, annual global trade is reduced by about 735 million US dollars compared to 2015. However, it is also certain that a protectionist trade policy does not contribute to solving the problem, on the contrary: "It is global trade with its substitution possibilities that reduces the economic losses caused by climate change," says Schenker.
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ZEW – Leibniz Centre for European Economic Research
ZEW in Mannheim conducts research in the field of applied and policy-oriented economics and provides access to important data sets for national and international researchers. The institute provides advice to policymakers, private companies and government institutions at both the national and EU level on how to tackle current economic policy challenges. The central concern of ZEW’s research is to analyse and design markets and institutions that allow for the sustainable and efficient development of knowledge-based economies in Europe. ZEW Mannheim was founded in 1991 and employs a staff of approximately 200, two thirds of whom are researchers. ZEW is a member of the Leibniz Association, a network of outstanding research institutes in Germany.
Research at ZEW
Corporate Taxation and Public Finance; Digital Economy; Economics of Innovation and Industrial Dynamics; Environmental and Climate Economics; Health Care Markets and Health Policy; Inequality and Public Policy; Labour Markets and Social Insurance; Market Design; Pensions and Sustainable Financial Markets.
About Frankfurt School of Finance & Management
Frankfurt School of Finance & Management (FS) is a private business school accredited by EQUIS, AMBA and AACSB. The university focuses on finance, economics and management, and offers Bachelor, Master, MBA and doctoral programmes as well as executive education courses and seminars for professionals and trainees. Frankfurt School is regularly placed among the top performers in major university rankings. For example, it ranks 24th in the latest Financial Times (FT) European Business School Ranking and is listed as the best German business school in the Times Higher Education Global University Employability Ranking. In the FT’s most recent global masters’ rankings the business school’s Master in Management is positioned 29th (2021) and its Master of Finance 27th (2022).
Consulting is another important pillar of Frankfurt School’s activities. The university provides advice and support to businesses and organisations in emerging and developing countries, especially in the field of ESG.
In addition to the main Frankfurt campus, Frankfurt School has study centres in Hamburg and Munich, as well as offices in Ankara, Amman, Brussels, Dubai, Istanbul, Nairobi and Beijing. Frankfurt School is a globally connected business school with over 125 partner universities. For more information, visit https://www.frankfurt-school.de/en/home
Press contact:
ZEW
Ruprecht Hammerschmidt
Phone: +49 (0)621/1235-132, Fax -255
E-Mail: ruprecht.hammerschmidt@zew.de
Frankfurt School of Finance & Management
Christian Kronberger
Phone: +49 (0)69/154008-322
E-Mail: c.kronberger@fs.de
Dr Daniel Osberghaus, phone: 0621/1235-205, e-mail: daniel.osberghaus@zew.de
Professor Dr Oliver Schenker, e-mail: o.schenker@fs.de
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