Does weather affect local economic growth? Evidence from the world’s most natural disaster-prone country

Abstract Using novel nighttime lights and high-resolution atmospheric reanalysis, this paper exploits exogenous fluctuations in temperature and precipitation to identify the causal effects of weather disturbances on local economic growth in the Philippines – the world’s most disaster-prone country. Our findings reveal that heightened temperature variability significantly dampens growth, but only in poor municipalities. This effect persists for at least 2 years after the initial shock. Furthermore, the relationship between weather shocks and growth is nonlinear. We also demonstrate that adverse weather events impede growth by disrupting agricultural productivity and essential service sectors, including wholesale and retail trade, health and education. Overall, our results highlight the importance of understanding the distributional impact of climate change within countries, its underlying mechanisms, and how economic development policies can help shield poor municipalities from the vagaries of the weather.