# **1. Introduction**

The Chilean territory stretches from the tropics to Antarctica and from the middle of the Pacific Ocean (Easter Island) to the Andean peaks almost 7 kilometers above sea level. This makes for tremendous climatic variation within a single country, and in this paper we will exploit some of this spatial variation to investigate how climate and climate change might affect human development in Chile.

Climate is affecting people and their activities in many complex and intertwined ways. Some activities, such as agriculture and tourism, are more sensitive to climatic conditions than others (e.g. accounting and teaching), and some population groups, such as people with poor health and those who work outdoors, are more sensitive to climate stresses than other groups. Not only does climate change affect each individual differently, but climate change in one place can have indirect effects on people on the other side of the globe, even if they don’t experience any climate change themselves.<sup>1</sup> Despite these multi-dimensional complexities, and without understanding all the underlying mechanisms and links, it is possible to assess the likely net effects of climate change on different population groups. In order to assess how climate change is likely to affect a particular population, two things are necessary: First we have to understand how climate is currently affecting them, and second we have to understand how climate is changing.

A simple way to gauge how climate affects human development is to compare human development across regions with different climates. For example, Horowitz (2006) uses a cross-section of 156 countries to estimate the relationship between temperature and income level. The overall relationship found is very strongly negative, with a 2  F increase in global temperatures implying a 13 percent drop in income. This is very dramatic, but the relationship is thought to be mostly historical and thus not very relevant for the prediction of the effects of future climate change. In order to control for historical factors, the paper includes colonial mortality rates as an explanatory variable, and finds a much more limited, but still highly significant, contemporaneous effect of temperature on incomes. The contemporaneous relationship estimated implies that a 2  F increase in global temperatures would cause approximately a 3.5 percent drop in world GDP.

In order to further control for historical differences, Horowitz (2006) uses more homogeneous sub-samples, such as only OECD countries or only countries from the Former Soviet Union, and the negative relationship still holds. However, for directions for further research, he recommends empirical studies of income and temperature variations within large, heterogeneous countries, which would provide much more thorough control for historical differences.

This is exactly what we will do in the present paper. Using data from 333 municipalities ( _comuna_ s) in Chile, we will estimate short-run relationships between climate variables

> 1 For example, an extensive drought in Central America might damage its coffee-production and the reduced supply of coffee would increase the world price of coffee, which could benefit coffee-producers in other parts of the world.

2