Effects Of Sea Level Rise On Economy Of The United States

Monika Novackova, Richard S.J. Tol

Abstract

We report the first ex post study of the economic impact of sea level rise. We apply two econometric approaches to estimate the past effects of sea level rise on the economy of the USA, viz. Barro type growth regressions adjusted for spatial patterns and a matching estimator. Unit of analysis is 3063 counties of the USA. We fit growth regressions for 13 time periods and we estimated numerous varieties and robustness tests for both growth regressions and matching estimator. Although there is some evidence that sea level rise has a positive effect on economic growth, in most specifications the estimated effects are insignificant. We therefore conclude that there is no stable, significant effect of sea level rise on economic growth. This finding contradicts previous ex ante studies.

Effects Of Sea Level Rise On Economy Of The United States – Introduction

Sea level rise features among the more important economic impacts of climate change (Tol, 2009), particularly because of its potential to overwhelm regional and even national economies, either through massive land loss or exorbitantly expensive coastal protection (Nicholls and Tol, 2006). Better understanding of past effects of sea level rise should help to predict future sea level rise effects more precisely and find optimal policies to face this consequence of climate change.

Studies of the future impact of climate change typically rely on simulation models that are applied far outside their domain of calibration (Hinkel et al., 2014). Model validation and parameter estimation are rare (Mendelsohn et al., 1994). This is to a degree unavoidable – climate change is part of a yet-to-be-observed future – but should be minimized to gain more confidence in future projections of the effects of climate change. This paper contributes by studying the economic impacts of sea level rise on the economic development of the USA in the recent past. To the best of our knowledge, no one has yet attempted to test model-based impact estimates of sea level rise against observations. This paper does not do that either. Instead, we take a key prediction from these ex ante models — that sea level rise would decelerate economic growth — and test it against the data.

Our starting point is that sea level rise is a common phenomenon. Indeed, since the start of the Holocene, global sea level rise has been 14 metres, although the bulk of it happened between seven and eight thousand years ago and most of the rest before the start of the Common Era (Fleming et al., 1998; Milne et al., 2005). Global sea level rise has been muted in more recent times – relative to both the more distant past and future projections, but relative sea level rise has been pronounced in some locations. Thermal expansion, ice melt and ice displacement cause the sea to rise, but subsidence and tectonics can cause the land to fall (Church et al., 2014). This effect can be large. Parts of Bangkok and Tokyo, for instance, fell by five metres in a few decades during the 20th century (Nicholls and Cazenave, 2010; Hinkel et al., 2014; Sato et al., 2006).

We, however, focus on the contiguous USA, for three reasons. (i) There are excellent data on relative sea level rise and pronounced regional differences in sea level rise. (ii) There are also excellent data on economic growth with fine spatial detail. (iii) Finally, regional growth patterns are well-studied in the USA (e.g. Latzko, 2013; Higgins et al., 2006; Goetz and Hu, 1996) so that we minimize the risk of ascribing to sea level rise what is caused by something else.

We hypothesize that relative sea level rise has a negative effect on economic growth. There are two main channels — see Fankhauser and Tol (2005) for a more thorough treatment. First, sea level rise causes damage in the form of erosion and floods, which reduce the productivity of land, labor and capital. Second, protection against coastal hazards implies that capital is diverted from productive to protective investment. On the other hand, if coastal protection is subsidized by inland areas (which may be the case in the USA), then areas with high relative sea level rise would record the economic activity of dike building etc. without suffering the costs, and would thus grow faster than other areas.

The paper proceeds as follows. Section 2 describes the two main methods used in this study. The methods include a Barro type conditional growth regressions and a matching estimator. Section 3 discusses data sources. Section 4 presents empirical results. In Section 5, different variants of the Barro type economic growth regressions are discussed to verify robustness of results. Section 6 concludes.

Sea Level Rise, Economic Impact, US Economy

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