Author: Elinor
Date: August 26, 2026
Article Title:
Macroeconomic effects of climate change: Evidence from Canadian provinces
Article Affiliation:
International Monetary Fund
Standard Chartered Bank
Article Citation:
Liu, L. Q., Pan, D., & Raissi, M. (2025). Macroeconomic effects of climate change: Evidence from Canadian provinces. International Economics (Paris), 181, 100572-. https://doi.org/10.1016/j.inteco.2024.100572
INTRODUCTION
Canada’s climate has been warming at a rate faster than the global average. Since 1948, temperatures in Northern Canada have increased by about 2.3 °C, almost three times the global rate. This rapid warming has led to shrinking sea ice, accelerated permafrost thaw, and glacier loss, significantly impacting northern ecosystems and communities.
Annual precipitation has also increased across the country, especially in the North, though at a more moderate pace. These climatic changes are altering natural systems and increasing the frequency of extreme weather events.
The link between climate change and economic performance is complex. While climate impacts can hinder GDP growth through damages and disruptions, the transition to a low-carbon economy also presents opportunities for innovation and sustainable development. For Canada, balancing climate resilience and economic prosperity is increasingly essential.
The article aims to study the long-term macroeconomic effects of climate change across ten Canadian provinces between 1961 and 2017. It links deviations of temperature and precipitation from their long-term moving-average historical norms to various provincial economic performance indicators at the aggregate and sectoral levels.
Previous studies have primarily examined average temperature and precipitation at the national level. However, Canada’s vast geographic diversity—spanning 10 provinces with significant climatic and economic differences—means that such aggregated analyses may overlook important regional variations. This study addresses that gap by providing a more granular assessment at both the provincial and sectoral levels, offering deeper insights into localized climate impacts and their economic implications.
The article uses an econometric method in economics – a panel ARDL model using the PMG estimator. PMG estimator is an intermediate case between the averaging and pooling methods of estimation, and it can provide consistency and efficiency at the within-country level.
RESULTS AND DISCUSSION
This article finds that climate change has persistent negative effects on real economic output across Canadian provinces and sectors. If annual precipitation rises steadily by 10 mm above the 30-year moving average, Canada’s long-term GDP growth could decline by 0.3% per year. Likewise, if temperatures fall by 0.01 °C below historical norms each year over an extended period, provincial income growth may decrease by 0.03% annually.
While some industries may have adapted to higher temperatures and increased precipitation, the Canadian economy as a whole—and at the sectoral level—remains sensitive to changes in weather patterns.
In terms of temperature specifically, prolonged cold spells (where temperatures remain below historical norms) are harmful to growth, even though such events are becoming less frequent. At the same time, contrary to some arguments in existing literature, there is no clear evidence that a warmer climate is bringing economic benefits to Canada.
CONCLUSION
Climate change is already affecting Canada’s economy in real and measurable ways. The study shows that long-term shifts in temperature and rainfall can slow economic growth, not just at the national level but across different provinces and sectors. Adapting to these changes can help reduce the damage, but won’t fully prevent it. Policymakers and businesses need to prepare for ongoing climate risks and their economic consequences.
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