The Surprising Link Between Climate and Prosperity: Why Cold Countries Are Richer Than Hot Countries

The episode delves into the intriguing observation that colder countries generally exhibit higher GDP per capita compared to hotter ones, a pattern observable globally and even within individual nations. While conventional economic factors like political stability, industry, and natural resource wealth are acknowledged as crucial, the podcast highlights a distinct statistical correlation between average temperature and national prosperity. It notes that most developed economies are situated outside the tropics, and even in Australia, its more prosperous cities are its colder ones, defying expectations based on proximity to resources or trade routes.\n\nThrough a simple linear regression analysis, the podcast quantifies this relationship: for every additional degree Celsius in a country's average temperature, the expected GDP per capita decreases by $762 annually. The analysis yields an R-squared value of 0.09, indicating that 9% of a nation's prosperity is attributable to its temperature, a significant finding amidst numerous other economic determinants. The discussion addresses outliers such as wealthy, hot, resource-rich nations (Bahrain, Qatar, UAE) and unique cases like Singapore, as well as cold, impoverished countries (North Korea), demonstrating that other factors can indeed override climatic influence. Crucially, the episode distinguishes between correlation and causation, arguing that this observed relationship is not spurious, as there's no hidden third variable directly linking temperature and GDP in the way, for instance, summer links ice cream sales and drownings.\n\nSeveral theories are explored to explain this phenomenon. The most prominent is the \"economic selection\" theory, which posits that the harsh conditions of colder winters compelled early societies to develop advanced planning, resource stockpiling, and robust shelter-building skills for survival. This \"forced industriousness\" fostered a culture valuing capital goods and innovation over generations, a stark contrast to tropical regions where basic sustenance was more readily available year-round. Another theory suggests that colder environments promote social tolerance due to prolonged indoor confinement, while hotter temperatures can increase aggression, giving an advantage to "cooler heads" in the modern world of business and global negotiation.\n\nThe podcast also traces the historical evolution of this trend, noting that 2,000 years ago, hotter nations were actually wealthier, as prosperity was primarily tied to agricultural output. This dynamic shifted dramatically with the advent of the Age of Industry, where innovation and industrial capacity superseded farming as the main drivers of wealth, allowing societies that had historically adapted to challenging environments to thrive. While acknowledging the "head start" enjoyed by colder nations, the example of Singapore illustrates that this advantage is not immutable, and every country possesses the potential for development irrespective of its climate. The episode concludes by emphasizing that while this correlation may not directly inform policy, it serves as a compelling case study for economists to deeply understand the multifaceted drivers of successful economies and underscores the critical importance of discerning cause-and-effect in the modern professional landscape.

cold countries are richer than hot countries

apart from a few outliers almost all the developed countries in the world exist outside of the tropics

no conclusive studies have ever been done on this subject and in fact the only peer-reviewed paper that we were able to find on the subject did not actually look at any raw figures

for every extra degree Celsius in average national temperature the expected value of GDP per capita Falls by seven hundred and sixty two dollars per year

9 percent of a country's prosperity is determined by its temperature

correlation does not always mean causation

societies that weren't industrious just froze and died off

2,000 years ago the wealth of a country was effectively determined by how much food it could produce

in the modern world wealth is no longer determined by how much a country can farm instead it's determined by industry and innovation

hotter temperatures naturally lead to more aggressive behaviors in human beans cold temperatures specifically do the opposite

the places like the singapore show that this head start will not last forever

it might not show any information that could be turned into useful policy but it is a great case study that forces economists to truly grapple with what it is that make successful economies successful