June 9, 2009

Challenge to VoxEU: Explain Singapore

I was looking at one of the economics links I just posted, Does climate change affect economic growth? And I must say, I find this particular theory weak. The authors' summary reads:

Hot countries tend to be poorer, but debate continues over whether the temperature-income relationship is simply a happenstance association. This column uses within-country estimates to show that higher temperatures have large, negative effects on economic growth – but only in poor countries. The findings are big news for future global inequality.

Personally, I'd think that the temperature-income relationship is happenstance, especially when one looks at Southeast Asian countries like Singapore, Malaysia, Thailand and Indonesia. All of these countries are hot year-round, but that hasn't stopped any of these countries from progressing economically.

The authors wrote:

First, higher temperatures have large, negative effects on economic growth, but only in poor countries. In poor countries, we estimate that a 1ÂșC temperature increase in a given year reduced economic growth in that year by about 1.1 percentage points. In rich countries, changes in temperature had no discernable [sic] effect on growth.

Presumably, in hot poor countries the economy should remain poor year-in and year-out if this theory holds. Thus, a hot poor country should remain poor with little to no chance of growing economically.

But this flies in the face of the economic histories of Southeast Asian countries. Of the four countries I mentioned above, Singapore, by far, has grown the most over time, despite an average daily high temperature of 88° Fahrenheit (31° Celsius) year-round. In 1960, the nominal GDP per capita for Singapore was a mere US$427. (In comparison, the U.S.'s nominal GDP per capita in 1960 was US$2,912.) By 2008, Singapore's nominal GDP per capita had risen to US$37,597 (with the U.S.'s nominal GDP per capita being US$46,841). That's an annual growth rate over 48 years of 9.78% for Singapore and 5.96% for the U.S.

Now, granted, you won't find as strong of numbers for the other Southeast Asian nations, but if you look at the GDP per capita graphs since 1980 for Indonesia, Malaysia and Thailand, you will see a fairly steady upward climb in the GDPs per capita with the only exceptions being in the late 90s due to the Asian financial crisis. (One could probably make a similar case for the State of Arizona if State Domestic Product numbers were available.) These growth rates can't be explained due to moderate daily temperatures; this region has a tropical climate.

It seems to me that this theory has a limited value due to its inability to explain the economic success of countries like Singapore. The authors need to explain a case like Singapore, which went from a poor country to a rich country over the past fifty years despite the hot climate here.

Notes:
Singapore GDP Source
U.S. GDP Source

7 comments:

George Carty said...

I'm rather sceptical of man-made global warming too - my thought is "if it was as bad as the alarmists claim, why haven't governments declared a state of emergency and started building nuclear reactors as fast as possible, with any opposing protesters being simply shot? After all, even a few Chernobyl disasters a year would be peanuts in comparison to their cataclysmic claims on global warming..."

bambam said...

think about it this way, if we presume that poorer countries tend to rely on agricultural income rather than industrial then global warming is more likely to affect them. so this theory while it might be true doesn't have much value since it doesn't predict any behavior that hasn't already been predicted. and the reason singapore doesn't fit is because the bigger pie of its GDP is industrialized

JDsg said...

One, the subject of global warming is off-topic. Two, if either of you are so confident that global warming is a hoax then I invite both of you to settle in the Maldives or on one of the islands in the South Pacific and to stay there even after your island has vanished beneath the waves, telling yourself, "But global warming was just a hoax!" Three, George, really, I must say that your thinking regarding a few Chernobyl disasters being "peanuts" is either warped or you are just too young and inexperienced to remember the realities of Chernobyl and Three Mile Island.

JDsg said...

bambam: Your argument makes more sense and, in a case like Singapore, where there's practically no agricultural sector to begin with (almost all foods here are imported), the country was forced by necessity to move the economy into the secondary and tertiary (and higher) levels. Thus, it didn't matter what the level of daily temperature was, this country would still have had to work hard to grow the economy.

The problem with your argument is that one can find plenty of outliers on both sides. If you compare the agricultural output of, say, Iraq, Ireland and Ukraine, the first two have primary output levels of 5%, while Ukraine's is 9.3% (well above the world average of 4%). Yet, obviously, Iraq is a "hot" country and Ireland and Ukraine are "cold." But Iraq's GDP per capita is low (around $4000, not helped by warfare over the past twenty years), Ireland's is high (around $46,000), but Ukraine's is low (around $7000, not much higher that Iraq's but also not having the disadvantage of warfare and occupation).

The thing is, I had to study this topic when I was working on my MBA (read Michael Porter's "The Competitive Advantage of Nations" if you're interested in the topic). I know that a lot more factors go into the success or failure of a national economy than simply temperature, and that helps explain why the authors found that changes in temperature didn't affect growth in rich countries. But the theory doesn't explain outliers like Singapore, poor hot countries that became rich despite the heat.

bambam said...

lol ... yeah i'm always interested in econ. but when it comes to such theories is whether they add value or not. this one clearly doesn't *smells too Bourgeoisie for me*
Liked you said a lot of factors play in the sucess of a nation's economy... i just happen to think that how hot the climate gets tend to play a minimal role in comparative advantage.

George Carty said...

Three, George, really, I must say that your thinking regarding a few Chernobyl disasters being "peanuts" is either warped or you are just too young and inexperienced to remember the realities of Chernobyl and Three Mile Island.
I'll concede a Chernobyl death toll in the low thousands, so "a few Chernobyls a year" would amount to tens of thousands of deaths per year. (Compare that to the quarter million killed every year in China alone by air pollution from coal.)

The more extreme global-warming alarmists believe man-made climate change will kill billions by desertifying huge areas of the planet. Given that, the "peanuts" comparison seems valid enough to me.

As for "hot countries are poorer", isn't that simply a result of colonialism, rather than anything to do with climate itself?

George Carty said...

Oh, and my actual point of my query here was not whether or not man-made climate change is happening, but whether governments are more interested in bludgeoning their populations into low-energy lifestyles than they are in actually cutting CO2 emissions.

(Thinking again, I think I'm more sceptical of man-made global-warming catastrophe rather than man-made global warming per se. The loss of the Maldives would be a tragedy, but not an apocalypse.)