Temperature and US Economic Activity: Evidence from Disaggregated Data

We use sub-national data to examine the relationship between temperature and growth within the US and the European Union. Different from previous studies based on the country-level data, we find that the optimal temperature is much lower. Because most of production takes place in regions with temperatures above the optimal temperature, even modest temperature increases (e.g., 1 °C warming) have statistically and economically significant (negative) impact on the GDP growth of the US and the European Union. Our results suggest more proactive climate policy.