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Abstract
Recent econometric literature suggests that the level of the economic activity and economic productivity are linked to changes in temperature. The relationship is non-linear, inverted U-shaped and generalizable to both developing and developed countries. An optimum level of temperature seems to be associated with an optimum level of productivity. Starting from this our research question is to evaluate ex-ante the welfare (GDP) implications for the global economy induced by an increase in the international mobility of primary factors (labor and capital) associated with climate impacts on economic productivity. To achieve this goal we use a neo-classical Computable General Equilibrium model, GTAP. Compared to the standard GTAP we only modify the supply of labor and capital to allow for the international mobility of primary factors. Results show that in case of an asymmetric climate impact between regions international mobility of primary factors (capital and labor) can transform a climate cost in a climate opportunity. Importantly, a stronger negative climate impact can increase the climate opportunity provided by the international mobility of primary factors. The explanation behind these results is the movement of labor and capital prices which drive the relocation of primary factors toward the most productive regions.