Econometrics Seminar - Mengheng Li (UTS)

Title: Business cycle and growth implications of climatic heat stress

Abstract: The wet-bulb global temperature (WBGT) stands as a pivotal metric for assessing heat stress in various occupational contexts and plays a crucial role in regulating working hours during extreme weather conditions, thereby affecting labour capacity. In this study, we empirically explore the labour capacity hypothesis by examining the impact of WBGT on Australia's state final consumption. Our approach encompasses a reduced-form small panel autoregressive distributed lag model and extends to a structural threshold unobserved components factor model, allowing for the disentanglement of WBGT's short- and long-term effects on economic dynamics. Our findings reveal that significant WBGT shocks leave lasting scars on the economy, surpassing transient business cycle effects. To facilitate a comprehensive welfare analysis, we propose a conceptual model that integrates endogenous growth and considers heat stress-induced alterations in labour capacity, all rooted in our empirical findings.