extended essay for economics

IB Economics EE examples

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Economics Extended Essay Guide: Everything You Need to Learn

by  Antony W

April 18, 2024

This guide covers everything you need to learn before you write an IB Economics Extended Essay.

We look at the definition, structure, assessment criteria, topic selection, data collection, analysis and evaluation, and reflection.

What is an IB Economics Extended Essay?

An Economics Extended Essay is a 4,000-word autonomous, self-directed report based on a topic of personal interest. This project allows you to:

• Improve your research skills.
• Apply economic theories to a real-world issue.
• Analyze and evaluate the outcomes of your study.

The essay requires 40 hours of preparation and writing. Moreover, you’ll get help from your school-based supervisor throughout this period. The result should be a clear and well-organized analytical essay.

To write a comprehensive Economics EE, you must dedicate time to conduct in-depth research to collect meaningful and reliable data you can use to analyze the context of your theory and research issue.

IB Economics Extended Essay Structure

Your Economics EE should feature a title page, table of contents, introduction, methodology, main body, conclusion, bibliography, and appendices.

• Title Page: Write the title of the essay, the EE research question , subject, and word count.
• Table of Contents: Make sure each section mentioned in your table of contents has corresponding page numbers.
• Introduction: Explain the focus of the essay, the scope of the research, and your line of argument.
• Main Body: Write reasoned arguments for the issue under investigation. Use subheadings for methodology, analysis, discussion, and evaluation.
• Conclusion: Communicate what you’ve achieved. Mention the limitation of your research and note what your research question couldn’t answer.
• Bibliography:   Cite all the EE sources to demonstrate that you engaged in in-depth research and that you care about academic integrity.

IB Economics Extended Essay Assessment Criteria

The assessment criteria for an extended essay in economics examine focus and method, knowledge and understanding, critical thinking, presentation, and engagement. The following table is a complete summary of the marking scheme.

Economics Extended Essay Topic Selection

The best economics EE topic is the one that you find interesting enough to explore, as long as the focus remains on the fundamentals of economic concepts.

We strongly suggest you choose a topic that allows you to apply economic theories, methods and instruments present in the curriculum. Remember, the assignment requires you to conduct secondary research. However, you may also conduct pertinent original research depending on the topic you choose.

Your topic should:

• Be historical. However, your focus should be on a research issue that’s no more than five years old.
• Allow you to use economic theories and concepts to answer your research question.
• Provide opportunities for critical analysis of the information and data collected.
• Allow enough room for analysis while sticking to the scope of the essay. 

Don’t choose a broad topic because the essay needs critical and reflective thinking and analysis on something specific. And don’t pick an excessively narrow theme because you may not have access to specific data.

So choose your topic wisely, making sure that it isn’t too wide or too narrow to fit within the scope of the EE’s requirements.

Data Collection in Economics Extended Essay

You have to conduct original research on topics covered in the economics curriculum. Therefore, spend just enough time establishing value for your topic in microeconomics, macroeconomics or the global economy.

Doing original research goes a long way to show that the title and the research question is an issue unanswered by secondary sources.

If you’ve decided to write an EE on microeconomics, you may have to use primary research in the form of surveys, questionnaires, or interviews with pertinent businesspeople direct to the study subject.

Themes from macroeconomics and the global economy require more secondary research in the form of data extraction from published academic papers, historical records, government publications, newspaper/online articles, and statistical databases.

Analysis and Evaluation in Economics EE

The analysis of your economics extended essay can only be effective if you use pertinent economic theories to analyze data collected.

You have to incorporate applicable economic theories, models, and methods in your research’s findings.

For example, you can exhibit critical analysis and evaluation by a sound assessment and judgment of the amount to which the applicable economic theory is beneficial in addressing your research question .

If you cannot establish relevant connections between your selected topic and the research question, avoid establishing knowledge claims based on economic theories, models, and instruments.

Criterion C of the assessment instrument requires you to provide precise findings for each analyzed point, and there has to be interim conclusions throughout your writing.

Demonstrate knowledge and understanding of the limitations of your own research, flaws in the economic theories, and underlying assumptions of the models utilized when developing your arguments. Also, evaluate the extent to which an economic theory may or may not describe your topic.

IB Economics EE Reflection Session 

Being reflective is one of the IB learner profile characteristics, and it is now a formal requirement of the EE evaluation criteria.

IB uses the Reflections on Planning and Progress Form (RPPF), which has a 6-point value, to evaluate reflections. This is a substantial amount of points, which can determine the distinction between two grades on the final examination.  

As part of the EE requirements, you will be required to hold three mandatory reflection sessions with your supervisor, and each of these reflection sessions appear on the official RPPF.

Reflection in the EE focuses on the process of the assignment itself.

Consider the following areas of reflection for each portion of the RPPF:

• How did you overcome the problems, setbacks, and barriers you encountered, and what did you learn in the process?
• Which of the IB learner profile characteristics apply to you?
• What did you learn, and did new views emerge?  

The maximum word count for all three reflections is 500. You must write the reflection in your own word and pertain only to your personal learning journey throughout the course.

About the author 

Antony W is a professional writer and coach at Help for Assessment. He spends countless hours every day researching and writing great content filled with expert advice on how to write engaging essays, research papers, and assignments.

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Sat / act prep online guides and tips, the complete ib extended essay guide: examples, topics, and ideas.

International Baccalaureate (IB)

IB students around the globe fear writing the Extended Essay, but it doesn't have to be a source of stress! In this article, I'll get you excited about writing your Extended Essay and provide you with the resources you need to get an A on it.

If you're reading this article, I'm going to assume you're an IB student getting ready to write your Extended Essay. If you're looking at this as a potential future IB student, I recommend reading our introductory IB articles first, including our guide to what the IB program is and our full coverage of the IB curriculum .

IB Extended Essay: Why Should You Trust My Advice?

I myself am a recipient of an IB Diploma, and I happened to receive an A on my IB Extended Essay. Don't believe me? The proof is in the IBO pudding:

If you're confused by what this report means, EE is short for Extended Essay , and English A1 is the subject that my Extended Essay topic coordinated with. In layman's terms, my IB Diploma was graded in May 2010, I wrote my Extended Essay in the English A1 category, and I received an A grade on it.

What Is the Extended Essay in the IB Diploma Programme?

The IB Extended Essay, or EE , is a mini-thesis you write under the supervision of an IB advisor (an IB teacher at your school), which counts toward your IB Diploma (learn more about the major IB Diploma requirements in our guide) . I will explain exactly how the EE affects your Diploma later in this article.

For the Extended Essay, you will choose a research question as a topic, conduct the research independently, then write an essay on your findings . The essay itself is a long one—although there's a cap of 4,000 words, most successful essays get very close to this limit.

Keep in mind that the IB requires this essay to be a "formal piece of academic writing," meaning you'll have to do outside research and cite additional sources.

The IB Extended Essay must include the following:

• A title page
• Contents page
• Introduction
• Body of the essay
• References and bibliography

Additionally, your research topic must fall into one of the six approved DP categories , or IB subject groups, which are as follows:

• Group 1: Studies in Language and Literature
• Group 2: Language Acquisition
• Group 3: Individuals and Societies
• Group 4: Sciences
• Group 5: Mathematics
• Group 6: The Arts

Once you figure out your category and have identified a potential research topic, it's time to pick your advisor, who is normally an IB teacher at your school (though you can also find one online ). This person will help direct your research, and they'll conduct the reflection sessions you'll have to do as part of your Extended Essay.

As of 2018, the IB requires a "reflection process" as part of your EE supervision process. To fulfill this requirement, you have to meet at least three times with your supervisor in what the IB calls "reflection sessions." These meetings are not only mandatory but are also part of the formal assessment of the EE and your research methods.

According to the IB, the purpose of these meetings is to "provide an opportunity for students to reflect on their engagement with the research process." Basically, these meetings give your supervisor the opportunity to offer feedback, push you to think differently, and encourage you to evaluate your research process.

The final reflection session is called the viva voce, and it's a short 10- to 15-minute interview between you and your advisor. This happens at the very end of the EE process, and it's designed to help your advisor write their report, which factors into your EE grade.

Here are the topics covered in your viva voce :

• A check on plagiarism and malpractice
• Your reflection on your project's successes and difficulties
• Your reflection on what you've learned during the EE process

Your completed Extended Essay, along with your supervisor's report, will then be sent to the IB to be graded. We'll cover the assessment criteria in just a moment.

We'll help you learn how to have those "lightbulb" moments...even on test day!  

What Should You Write About in Your IB Extended Essay?

You can technically write about anything, so long as it falls within one of the approved categories listed above.

It's best to choose a topic that matches one of the IB courses , (such as Theatre, Film, Spanish, French, Math, Biology, etc.), which shouldn't be difficult because there are so many class subjects.

Here is a range of sample topics with the attached extended essay:

• Biology: The Effect of Age and Gender on the Photoreceptor Cells in the Human Retina
• Chemistry: How Does Reflux Time Affect the Yield and Purity of Ethyl Aminobenzoate (Benzocaine), and How Effective is Recrystallisation as a Purification Technique for This Compound?
• English: An Exploration of Jane Austen's Use of the Outdoors in Emma
• Geography: The Effect of Location on the Educational Attainment of Indigenous Secondary Students in Queensland, Australia
• Math: Alhazen's Billiard Problem
• Visual Arts: Can Luc Tuymans Be Classified as a Political Painter?

You can see from how varied the topics are that you have a lot of freedom when it comes to picking a topic . So how do you pick when the options are limitless?

How to Write a Stellar IB Extended Essay: 6 Essential Tips

Below are six key tips to keep in mind as you work on your Extended Essay for the IB DP. Follow these and you're sure to get an A!

#1: Write About Something You Enjoy

You can't expect to write a compelling essay if you're not a fan of the topic on which you're writing. For example, I just love British theatre and ended up writing my Extended Essay on a revolution in post-WWII British theatre. (Yes, I'm definitely a #TheatreNerd.)

I really encourage anyone who pursues an IB Diploma to take the Extended Essay seriously. I was fortunate enough to receive a full-tuition merit scholarship to USC's School of Dramatic Arts program. In my interview for the scholarship, I spoke passionately about my Extended Essay; thus, I genuinely think my Extended Essay helped me get my scholarship.

But how do you find a topic you're passionate about? Start by thinking about which classes you enjoy the most and why . Do you like math classes because you like to solve problems? Or do you enjoy English because you like to analyze literary texts?

Keep in mind that there's no right or wrong answer when it comes to choosing your Extended Essay topic. You're not more likely to get high marks because you're writing about science, just like you're not doomed to failure because you've chosen to tackle the social sciences. The quality of what you produce—not the field you choose to research within—will determine your grade.

Once you've figured out your category, you should brainstorm more specific topics by putting pen to paper . What was your favorite chapter you learned in that class? Was it astrophysics or mechanics? What did you like about that specific chapter? Is there something you want to learn more about? I recommend spending a few hours on this type of brainstorming.

One last note: if you're truly stumped on what to research, pick a topic that will help you in your future major or career . That way you can use your Extended Essay as a talking point in your college essays (and it will prepare you for your studies to come too!).

#2: Select a Topic That Is Neither Too Broad nor Too Narrow

There's a fine line between broad and narrow. You need to write about something specific, but not so specific that you can't write 4,000 words on it.

You can't write about WWII because that would be a book's worth of material. You also don't want to write about what type of soup prisoners of war received behind enemy lines, because you probably won’t be able to come up with 4,000 words of material about it. However, you could possibly write about how the conditions in German POW camps—and the rations provided—were directly affected by the Nazis' successes and failures on the front, including the use of captured factories and prison labor in Eastern Europe to increase production. WWII military history might be a little overdone, but you get my point.

If you're really stuck trying to pinpoint a not-too-broad-or-too-narrow topic, I suggest trying to brainstorm a topic that uses a comparison. Once you begin looking through the list of sample essays below, you'll notice that many use comparisons to formulate their main arguments.

I also used a comparison in my EE, contrasting Harold Pinter's Party Time with John Osborne's Look Back in Anger in order to show a transition in British theatre. Topics with comparisons of two to three plays, books, and so on tend to be the sweet spot. You can analyze each item and then compare them with one another after doing some in-depth analysis of each individually. The ways these items compare and contrast will end up forming the thesis of your essay!

When choosing a comparative topic, the key is that the comparison should be significant. I compared two plays to illustrate the transition in British theatre, but you could compare the ways different regional dialects affect people's job prospects or how different temperatures may or may not affect the mating patterns of lightning bugs. The point here is that comparisons not only help you limit your topic, but they also help you build your argument.

Comparisons are not the only way to get a grade-A EE, though. If after brainstorming, you pick a non-comparison-based topic and are still unsure whether your topic is too broad or narrow, spend about 30 minutes doing some basic research and see how much material is out there.

If there are more than 1,000 books, articles, or documentaries out there on that exact topic, it may be too broad. But if there are only two books that have any connection to your topic, it may be too narrow. If you're still unsure, ask your advisor—it's what they're there for! Speaking of advisors...

Don't get stuck with a narrow topic!

#3: Choose an Advisor Who Is Familiar With Your Topic

If you're not certain of who you would like to be your advisor, create a list of your top three choices. Next, write down the pros and cons of each possibility (I know this sounds tedious, but it really helps!).

For example, Mr. Green is my favorite teacher and we get along really well, but he teaches English. For my EE, I want to conduct an experiment that compares the efficiency of American electric cars with foreign electric cars.

I had Ms. White a year ago. She teaches physics and enjoyed having me in her class. Unlike Mr. Green, Ms. White could help me design my experiment.

Based on my topic and what I need from my advisor, Ms. White would be a better fit for me than would Mr. Green (even though I like him a lot).

The moral of my story is this: do not just ask your favorite teacher to be your advisor . They might be a hindrance to you if they teach another subject. For example, I would not recommend asking your biology teacher to guide you in writing an English literature-based EE.

There can, of course, be exceptions to this rule. If you have a teacher who's passionate and knowledgeable about your topic (as my English teacher was about my theatre topic), you could ask that instructor. Consider all your options before you do this. There was no theatre teacher at my high school, so I couldn't find a theatre-specific advisor, but I chose the next best thing.

Before you approach a teacher to serve as your advisor, check with your high school to see what requirements they have for this process. Some IB high schools require your IB Extended Essay advisor to sign an Agreement Form , for instance.

Make sure that you ask your IB coordinator whether there is any required paperwork to fill out. If your school needs a specific form signed, bring it with you when you ask your teacher to be your EE advisor.

#4: Pick an Advisor Who Will Push You to Be Your Best

Some teachers might just take on students because they have to and aren't very passionate about reading drafts, only giving you minimal feedback. Choose a teacher who will take the time to read several drafts of your essay and give you extensive notes. I would not have gotten my A without being pushed to make my Extended Essay draft better.

Ask a teacher that you have experience with through class or an extracurricular activity. Do not ask a teacher that you have absolutely no connection to. If a teacher already knows you, that means they already know your strengths and weaknesses, so they know what to look for, where you need to improve, and how to encourage your best work.

Also, don't forget that your supervisor's assessment is part of your overall EE score . If you're meeting with someone who pushes you to do better—and you actually take their advice—they'll have more impressive things to say about you than a supervisor who doesn't know you well and isn't heavily involved in your research process.

Be aware that the IB only allows advisors to make suggestions and give constructive criticism. Your teacher cannot actually help you write your EE. The IB recommends that the supervisor spends approximately two to three hours in total with the candidate discussing the EE.

#5: Make Sure Your Essay Has a Clear Structure and Flow

The IB likes structure. Your EE needs a clear introduction (which should be one to two double-spaced pages), research question/focus (i.e., what you're investigating), a body, and a conclusion (about one double-spaced page). An essay with unclear organization will be graded poorly.

The body of your EE should make up the bulk of the essay. It should be about eight to 18 pages long (again, depending on your topic). Your body can be split into multiple parts. For example, if you were doing a comparison, you might have one third of your body as Novel A Analysis, another third as Novel B Analysis, and the final third as your comparison of Novels A and B.

If you're conducting an experiment or analyzing data, such as in this EE , your EE body should have a clear structure that aligns with the scientific method ; you should state the research question, discuss your method, present the data, analyze the data, explain any uncertainties, and draw a conclusion and/or evaluate the success of the experiment.

#6: Start Writing Sooner Rather Than Later!

You will not be able to crank out a 4,000-word essay in just a week and get an A on it. You'll be reading many, many articles (and, depending on your topic, possibly books and plays as well!). As such, it's imperative that you start your research as soon as possible.

Each school has a slightly different deadline for the Extended Essay. Some schools want them as soon as November of your senior year; others will take them as late as February. Your school will tell you what your deadline is. If they haven't mentioned it by February of your junior year, ask your IB coordinator about it.

Some high schools will provide you with a timeline of when you need to come up with a topic, when you need to meet with your advisor, and when certain drafts are due. Not all schools do this. Ask your IB coordinator if you are unsure whether you are on a specific timeline.

Below is my recommended EE timeline. While it's earlier than most schools, it'll save you a ton of heartache (trust me, I remember how hard this process was!):

• January/February of Junior Year: Come up with your final research topic (or at least your top three options).
• February of Junior Year: Approach a teacher about being your EE advisor. If they decline, keep asking others until you find one. See my notes above on how to pick an EE advisor.
• April/May of Junior Year: Submit an outline of your EE and a bibliography of potential research sources (I recommend at least seven to 10) to your EE advisor. Meet with your EE advisor to discuss your outline.
• Summer Between Junior and Senior Year: Complete your first full draft over the summer between your junior and senior year. I know, I know—no one wants to work during the summer, but trust me—this will save you so much stress come fall when you are busy with college applications and other internal assessments for your IB classes. You will want to have this first full draft done because you will want to complete a couple of draft cycles as you likely won't be able to get everything you want to say into 4,000 articulate words on the first attempt. Try to get this first draft into the best possible shape so you don't have to work on too many revisions during the school year on top of your homework, college applications, and extracurriculars.
• August/September of Senior Year: Turn in your first draft of your EE to your advisor and receive feedback. Work on incorporating their feedback into your essay. If they have a lot of suggestions for improvement, ask if they will read one more draft before the final draft.
• September/October of Senior Year: Submit the second draft of your EE to your advisor (if necessary) and look at their feedback. Work on creating the best possible final draft.
• November-February of Senior Year: Schedule your viva voce. Submit two copies of your final draft to your school to be sent off to the IB. You likely will not get your grade until after you graduate.

Remember that in the middle of these milestones, you'll need to schedule two other reflection sessions with your advisor . (Your teachers will actually take notes on these sessions on a form like this one , which then gets submitted to the IB.)

I recommend doing them when you get feedback on your drafts, but these meetings will ultimately be up to your supervisor. Just don't forget to do them!

The early bird DOES get the worm!

How Is the IB Extended Essay Graded?

Extended Essays are graded by examiners appointed by the IB on a scale of 0 to 34 . You'll be graded on five criteria, each with its own set of points. You can learn more about how EE scoring works by reading the IB guide to extended essays .

• Criterion A: Focus and Method (6 points maximum)
• Criterion B: Knowledge and Understanding (6 points maximum)
• Criterion C: Critical Thinking (12 points maximum)
• Criterion D: Presentation (4 points maximum)
• Criterion E: Engagement (6 points maximum)

How well you do on each of these criteria will determine the final letter grade you get for your EE. You must earn at least a D to be eligible to receive your IB Diploma.

Although each criterion has a point value, the IB explicitly states that graders are not converting point totals into grades; instead, they're using qualitative grade descriptors to determine the final grade of your Extended Essay . Grade descriptors are on pages 102-103 of this document .

Here's a rough estimate of how these different point values translate to letter grades based on previous scoring methods for the EE. This is just an estimate —you should read and understand the grade descriptors so you know exactly what the scorers are looking for.

Here is the breakdown of EE scores (from the May 2021 bulletin):

How Does the Extended Essay Grade Affect Your IB Diploma?

The Extended Essay grade is combined with your TOK (Theory of Knowledge) grade to determine how many points you get toward your IB Diploma.

To learn about Theory of Knowledge or how many points you need to receive an IB Diploma, read our complete guide to the IB program and our guide to the IB Diploma requirements .

This diagram shows how the two scores are combined to determine how many points you receive for your IB diploma (3 being the most, 0 being the least). In order to get your IB Diploma, you have to earn 24 points across both categories (the TOK and EE). The highest score anyone can earn is 45 points.

Let's say you get an A on your EE and a B on TOK. You will get 3 points toward your Diploma. As of 2014, a student who scores an E on either the extended essay or TOK essay will not be eligible to receive an IB Diploma .

Prior to the class of 2010, a Diploma candidate could receive a failing grade in either the Extended Essay or Theory of Knowledge and still be awarded a Diploma, but this is no longer true.

Figuring out how you're assessed can be a little tricky. Luckily, the IB breaks everything down here in this document . (The assessment information begins on page 219.)

40+ Sample Extended Essays for the IB Diploma Programme

In case you want a little more guidance on how to get an A on your EE, here are over 40 excellent (grade A) sample extended essays for your reading pleasure. Essays are grouped by IB subject.

• Business Management 1
• Chemistry 1
• Chemistry 2
• Chemistry 3
• Chemistry 4
• Chemistry 5
• Chemistry 6
• Chemistry 7
• Computer Science 1
• Economics 1
• Design Technology 1
• Design Technology 2
• Environmental Systems and Societies 1
• Geography 1
• Geography 2
• Geography 3
• Geography 4
• Geography 5
• Geography 6
• Literature and Performance 1
• Mathematics 1
• Mathematics 2
• Mathematics 3
• Mathematics 4
• Mathematics 5
• Philosophy 1
• Philosophy 2
• Philosophy 3
• Philosophy 4
• Philosophy 5
• Psychology 1
• Psychology 2
• Psychology 3
• Psychology 4
• Psychology 5
• Social and Cultural Anthropology 1
• Social and Cultural Anthropology 2
• Social and Cultural Anthropology 3
• Sports, Exercise and Health Science 1
• Sports, Exercise and Health Science 2
• Visual Arts 1
• Visual Arts 2
• Visual Arts 3
• Visual Arts 4
• Visual Arts 5
• World Religion 1
• World Religion 2
• World Religion 3

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IB Extended Essay Topics: Economics

As someone with a background in the International Baccalaureate (IB) program, I’ve come to appreciate the unique challenges and opportunities it presents, especially regarding the IB DP Economics Extended Essay (EE). From my extensive experience, I can say that choosing the right topic is an essential step in achieving a high score. That’s why I’m happy to share some ideas on engaging and researchable IB Economics Extended Essay topics.

The Basics of an Economics Extended Essay

Let’s talk about what an Economics EE involves. According to the general IB criteria, this essay requires you to conduct independent research on a topic of interest in Economics, culminating in a 4,000-word paper. From my perspective, the beauty of IB DP Economics EE lies in its ability to explore complex global issues through the lens of economic theory and principles.

In my experience, the most successful economics EEs are born from a genuine passion for the subject matter. Here’s a non-exhaustive list of considerations that might help to choose a topic:

• Aim for a topic that reflects ongoing discussions within the field of economics. It could range from the impact of blockchain technology on financial markets to the economic consequences of climate change policies.
• Ensure sufficient data is available to support your research. Topics with accessible and reliable data sources allow for a more in-depth analysis and a stronger argument.
• Choose a topic that allows you to apply economic theories and concepts. It may involve analyzing market structures, evaluating economic policies, or exploring consumer behavior factors.
• Your topic should spark curiosity and engagement. Writing about something you’re genuinely interested in can make the research process more enjoyable and fulfilling.
• Consider the feasibility of your topic within the given word count and time constraints. Find a topic broad enough to explore in depth but narrow enough to be thoroughly analyzed within 4,000 words.

A high-grade economics EE doesn’t just summarize data or describe an economic situation. It critically engages with economic theories and models to analyze that data. It might involve applying the concepts of supply and demand, elasticity, market structures, or the theories of consumer choice to your chosen topic.

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Extended Essay Topics in Economics: The Best Ideas

As mentioned above, creating an engaging and rigorous IB Extended Essay in Economics starts with choosing a theme for investigation. Below are some topics and research questions spanning various aspects of economics.

These ideas can inspire and guide IB students in their quest for a fascinating research project:

• The Impact of COVID-19 on Small Businesses in New York City . How have small businesses in New York City adapted to the economic challenges posed by the COVID-19 pandemic?
• Cryptocurrencies and the Global Economy . How do Bitcoin and other cryptocurrencies influence global trade and financial markets?
• Sustainable Agriculture and Economic Development in India . Can sustainable agriculture significantly contribute to economic development in India?
• The Economics of Renewable Energy in Germany . How cost-effective are renewable energy sources compared to traditional fossil fuels in Germany?
• Globalization and Local Economies in Mexico . What is the impact of globalization on Mexico’s manufacturing sector?
• Minimum Wage and Employment Rates in the UK Retail Industry . How does introducing a minimum wage affect employment rates in the UK retail industry?
• Economic Implications of Climate Change Policies in the European Union . How have climate change policies impacted economic growth in the European Union?
• Consumer Behavior and E-commerce in China . How has the proliferation of online shopping platforms like Alibaba changed consumer behavior in China?
• Market Structure and Competition in the Telecommunications Industry of South Korea . How does the market structure affect consumer prices and service quality in South Korea’s telecommunications industry?
• Income Inequality and Economic Growth in Brazil . Does income inequality hinder economic growth in Brazil?
• The Economics of Education and Its Impact on Economic Growth in Finland . How does the level of education affect economic growth in Finland?
• Foreign Direct Investment (FDI) and Economic Development in Vietnam . What role does FDI play in Vietnam’s economic development?
• Tourism Economics and Economic Development in Thailand . How does tourism contribute to the economic development of Thailand?
• Economic Impact of Health Crises on the Healthcare Sector in Italy. What are the long-term economic impacts of the COVID-19 pandemic on Italy’s healthcare sector?
• Technology Startups and Economic Growth in Silicon Valley, USA . How do technology startups contribute to economic growth in Silicon Valley?
• Trade Policies and Agricultural Exports in Kenya . How do trade policies affect agricultural exports in Kenya?
• Inflation and Consumer Purchasing Power in Argentina . How does inflation affect consumer purchasing power in Argentina?
• The Gig Economy and Labor Markets in the United States . How does the gig economy impact traditional labor markets in the United States?
• Public Debt and Economic Stability in Greece . How does high public debt affect economic stability in Greece?
• Economic Sanctions and Their Effectiveness Against Iran . How effective are economic sanctions in achieving political objectives against Iran?
• Gender Inequality in the Workforce and Economic Development in Japan . What impact does gender inequality have on economic development in Japan?
• Economics of Recycling and Waste Management Policies in Sweden . How does the economics of recycling impact waste management policies in Sweden?
• Housing Markets and Economic Cycles in Canada . How do housing markets affect economic cycles in Canada?
• Impact of Social Media on Consumer Spending Among Teenagers in the United States . How does social media influence consumer spending habits among teenagers?
• The Role of Microfinance in Poverty Reduction in Bangladesh . How effective is microfinance in reducing poverty in Bangladesh?
• The Economic Effects of Urbanization in Lagos, Nigeria . How does rapid urbanization affect economic development and living standards in Lagos?
• Brexit and the UK’s Financial Services Sector . What has been Brexit’s impact on London as a global financial hub?
• The Economics of Plastic Ban Policies in Rwanda . How have plastic ban policies impacted the environment and economy in Rwanda?
• The Role of Women Entrepreneurs in Economic Development in Jordan . How do women entrepreneurs contribute to economic growth and job creation in Jordan?
• Impact of Digital Currency on Traditional Banking in Sweden . How is the rise of digital currency affecting traditional banking services in Sweden?
• Agricultural Subsidies and Food Security in India . How do agricultural subsidies impact food security and farmer welfare in India?
• Economic Impact of Cultural Tourism in Kyoto, Japan . What role does cultural tourism play in Kyoto’s economy?
• Child Labor and Economic Growth in Pakistan . How does child labor affect economic growth and development in Pakistan?
• The Effectiveness of Anti-Smoking Policies on Public Health Expenditures in Australia . Have anti-smoking policies significantly reduced public health expenditures in Australia?
• The Gig Economy and Urban Transportation in New York City . How has the gig economy transformed urban transportation in New York City?
• Renewable Energy Adoption and Job Creation in Germany . How has the shift towards renewable energy affected job creation in Germany?
• The Economic Consequences of Ageing Populations in Japan . What are the economic challenges and opportunities faced by an aging population in Japan?
• The Impact of Artificial Intelligence on Manufacturing Jobs in China . How is artificial intelligence reshaping the manufacturing sector and employment in China?
• The Influence of Social Media Marketing on Consumer Spending in the Fashion Industry . How does social media marketing influence consumer spending in the fashion industry?
• Water Scarcity and Economic Development in Egypt . How does water scarcity impact agricultural productivity and economic development in Egypt?
• The Economics of Space Exploration . What are the economic benefits and costs of investing in space exploration?
• Impact of Sports Events on Local Economies . Case Study of the Olympics in Tokyo: How do major sports events like the Olympics affect the local economy of the host city?
• Sustainable Fishing Practices and Economic Viability in Norway . How do sustainable fishing practices impact the economy and environment in Norway?
• The Role of E-commerce in Rural Development in China . How does e-commerce contribute to economic development in rural areas of China?
• Economic Impacts of Natural Disasters in the Philippines . How do natural disasters affect economic growth and recovery in the Philippines?
• The Relationship Between Social Inequality and Economic Growth in South Africa . How does social inequality affect economic growth in South Africa?
• The Effect of International Sanctions on North Korea’s Economy . How have international sanctions impacted North Korea’s economy?
• Economic Benefits of Bilingualism in Canada . How does bilingualism contribute to economic opportunities in Canada?
• The Impact of Veganism on the Meat Industry in the United States . How is the rise of veganism affecting the meat industry and economy in the United States?
• Mobile Banking and Financial Inclusion in Kenya . How has mobile banking contributed to financial inclusion and economic development in Kenya?

These topics and research questions are intended to promote critical thinking and lay the groundwork for a thorough inquiry into various economic concerns. You can tailor these ideas to your interests and data availability for Extended Essay research.

Don’t let the stress of the IB curriculum hold you back.

Are you struggling to come up with topic suggestions for your IB Extended Essay? Or do you need help with Internal Assessment?

Our experienced writers can help you choose the perfect topic and assist you with any assignment.

You can order an Extended Essay tailored to your specific subject and requirements.

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You can write an informative and compelling Extended Essay by choosing a topic that aligns with your interests and adhering to the IB’s criteria. Remember, this is an opportunity to research an area of Economics that fascinates you. So approach it enthusiastically, and you’ll get the highest grade. Also, if you need help with Extended Essay writing , just contact our IB writers.

Nora Spinster

Nora Spinster is a multi-talented individual who is an educator, lawyer, youth, expert IB tutor, education activist, and language and writing enthusiast. Nora has a wealth of experience in copywriting, having worked with various organizations and businesses to craft compelling and effective copy. Nora has published articles on young learners and teenage students in the International House Journal and occasionally posts on ibwritingservice.com educational blog

• Nora Spinster https://ibwritingservice.com/blog/author/noraspinster/ Using Extended Essay Topics That Are Already on the Internet. Is It Good?
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• Nora Spinster https://ibwritingservice.com/blog/author/noraspinster/ Philosophy Extended Essay Topics for IB
• Nora Spinster https://ibwritingservice.com/blog/author/noraspinster/ Anthropology IB Extended Essay Topics

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Gr. 11-12 Extended Essay

• Reflections
• Choose a Subject
• Choose a Topic
• Draft a Research Question
• Develop Your Search Strategy
• Computer Science

Economics EE Overview

Acceptable source types for economics ees, recommended databases, ee examples.

• Visual Arts
• World Studies
• Introduction
• Academic Integrity
• Common Questions
• For Supervisors
• Economics EE: Workflow and Expectations

Source requirements for economics essays are highly dependent on the nature of the question. Questions that invite and are dependent upon you conducting primary research (for example, interviews, surveys or questionnaires) are highly advisable though not mandatory. Essays based purely on secondary source materials (for example, economics data from the IMF and WTO) are perfectly feasible provided the question has a sufficiently narrow scope. Essays that combine primary and secondary sources are also fine, provided both sets of sources are shown to be directly relevant to the question.

Source: Lekanides, K. (2016). Extended Essay Course Companion. Oxford University Press.

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• Last Updated: Apr 5, 2024 8:17 AM
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Example essays

The International Baccalaureate® (IB)  programme resource centre,  a key resource for educators at IB World Schools, includes several examples of  extended essay titles .

These highlight the diverse range of topics covered by International Baccalaureate® (IB) Diploma Programme (DP) students during their extended essays.

Some examples are:

• “An analysis of costume as a source for understanding the inner life of the character”
• “A study of malnourished children in Indonesia and the extent of their recovery after a period of supervised improved nutrition.”
• “Doing  versus  being: language and reality in the Mimamsa school of Indian philosophy.” 
• “The effects of sugar-free chewing gum on the pH of saliva in the mouth after a meal.”
• “To what extent has the fall in the exchange rate of the US dollar affected the tourist industry in Carmel, California?”
•  “What level of data compression in music files is acceptable to the human ear?”

Also available in the programma resource centre , the Diploma Programme Assessment Procedures has guidance on choosing a subject for the extended essay.

The PRC is only available to existing IB World Schools.

You can also purchase examples of essays in the IB Store . These essays fulfil the requirements for an ‘A’ grade in the extended essay.

If your school is not one already, learn how to become an IB World School  in order to implement the DP.

IB Study Resources

September 14, 2021

A Definitive Guide to the IB Extended Essay (EE)

The Extended Essay (EE) is an independent, self-directed academic research, presented in the form of a 4,000-word paper. One component of the International Baccalaureate® (IB) Diploma Programme (DP) core, the extended essay is mandatory for all students. The final work is given a grade from E to A, and makes up part of each student’s final IB score. These are our thoughts on how to do well in the EE:

Step 1: Choosing a Extended Essay (EE) topic

Choosing a good topic for your extended essay can make a huge difference on your final score. Firstly, you should always choose a topic that you are interested in! The writing process becomes much more engaging, and will also be good content you can write in your personal statement for your university applications.

Always be creative and original when choosing your research topic. Think about how you can make your research question and the way you communicate your academic research unique. In addition, if you wish to explore a multidisciplinary field , you could consider writing a World Studies extended essay . This research is analysed through at least two disciplines, encouraging students to apply their knowledge to a problem with global significance. For example, you may want to consider the effects of an electric vehicle subsidy on climate change. This is an exciting opportunity and provides a good insight to an interdisciplinary university degree such as PPE.

Step 2: Framing your research question

Once you know your extended essay subject, your next step is to choose a question. Often, questions will be framed as “To what extent does…”. Exploring multiple perspectives, and critically analysing each of these, are key to success. Therefore, try and shape your question so that more than one point of view can be explored.

Similarly, make sure your question is specific ! Having a focused question will guide your research and show that you can explore one area in detail. For example, here are 2 examples of Economics extended essay questions:

• To what extent do smartphone companies compete with each other?
• To what extent do Apple and Samsung operate in a duopoly in the global smartphone market?

The second research question is more focused, allowing for greater in-depth research into which areas they are competing over. You can use secondary data from both companies’ annual reports, competitor websites, and undertake primary research (such as through an Economic survey or personal interview) – Having a research question that allows you to explore a specific area critically will definitely help you to score highly.

Step 3: Meeting your supervisor to establish specific targets

We recommend meeting with your supervisor as early as possible to check whether your research question is appropriate. If it is, this is a great opportunity to explore potential avenues of research. For example, a Physics extended essay on the path of a bowling bowl may look to incorporate several different features, such as force, weight, and air resistance into a model. Whichever subject area you choose, your supervisor is usually your first port of call for any questions you have.

During the meeting, it will be good to establish a timeline for your extended essay. Although this may only be rough, this will give you deadlines to work towards (much like you will need to do for university essays). Similarly, setting specific targets for your next meeting, such as writing an introduction or doing your survey, will also give you definitive targets to meet. Make sure at the end of this meeting you have clear goals to achieve and by your next meeting.

Furthermore, make sure that you are keeping a record of all of your meetings with your extended essay supervisor. 6 of the 36 marks for the EE are from your Reflections on Planning and Progress Form (RPPF) where you reflect on the meetings you have had with your supervisor. These should show that you are engaged with your topic, so discuss the ideas you have considered in response to setbacks whilst writing your extended essay and make sure to use personal pronouns (I, my) to convey your engagement. Detail any changes you made to your research method and demonstrate how you have taken a creative approach to your topic, as these will highlight what you have done to stand out.

Step 4: Starting your EE research

Following the meeting with your supervisor, it is time to begin researching your topic! This does not have to be too detailed to begin with, and we recommend aiming to research enough to write an introduction to your essay. This introduction should outline the main themes you will explore and your line of argument. To reiterate, your main argument may change as your essay develops, so do not worry if it is not perfect when you begin.

Some useful sources of information are your school library or Jstor. Your school librarian may be able to suggest some good books or articles to start reading, whilst using academic sources like Jstor or Google scholar gives you access to a wide range of academic material. When reading books or journal articles, you do not have to read them cover to cover! In fact, you should only read the sections that are relevant to your topic, and reading the introduction and conclusion will often tell you whether a journal article is relevant.

When reading, consistently keep in mind your essay title as this will help you to focus your reading on key sections of texts. For instance, highlight the key sections of the texts to review later. Alternatively, you could make notes in a separate word document; such as Googledocs; or with pen and paper. It is useful to keep everything you do in the same format, however, so you can easily collate it.

Step 5: Writing the essay’s first draft

The most difficult part with the EE is getting the first draft down. Many students struggle o to write the perfect introduction and methodology, and get stuck for weeks in the process. Your introduction and first draft do not have to be perfect but should form the base of your essay moving forward. It is often good to form a plan from your research that contains the key elements of each paragraph. Once you are confident with this and have filled it in with more research, you can turn this into a fully operational first draft.

We recommend breaking down the writing stage into several paragraphs, setting yourself mini-goals to achieve. This will help you to move along faster and make the seemingly daunting task of a 4,000-word essay a lot simpler. Similarly, you should use the research you have to support your ideas. Your research might consist of facts to back up your analysis or other writers’ opinions that agree with your own. Furthermore, you can also use this research to explore multiple points of view, coming to a conclusion as to which one is most appropriate. However, save yourself time whilst doing this by including links to the original article, rather than full references, as it is likely you may change the content of your essay and the references you use as you progress.

Make sure you save your extended essay frequently and to an accessible platform such Dropbox or Google Drive so that if your computer were to crash your progress will be stored!

Step 6: Reviewing your first draft

Your aim when meeting with your supervisor this time is to look over your first draft to see which parts are excellent, which can be explored further and which need to be rethought. This can be split into a number of meetings; for example, I looked at my introduction, then at the 4 sections of my main body, and finally at my conclusion. This reshaped the goals that I had moving forward and gave me specific subsections to work on.

Whilst editing your first draft, do not be afraid to delete, reword or move some parts that you have written, as this will help you shape your extended essay into the finished article. You can, if needed, even slightly alter your question. I changed my question at the start of April, with a June deadline for my essay. However, changing my essay question did not leave me with a whole new essay to write, as I was able to use most of what I had already written, adapting it to focus on the new question. Whatever changes you have to make, they are all moving you towards a complete final version, so stay positive!

Step 7: Refining your Extended Essay

After your meeting, review the changes you have to make to your methodology and research process. You should consider whether you have critically investigated the variables in your RQ and whether it is backed up by a solid methodology. For instance, are there any counter arguments you have not considered? Does your research process flow? Always draw links to each paragraph, so that your essay has a logical flow from its introduction to its argument, counter arguments, responses, and conclusion.

When researching areas in more detail, make use of what you have learnt from your current research. For instance, look at the suggested reading or references in books that you have read or look at articles from the same journal. Furthermore, stay up to date with the news in case you can include new research in your extended essay.

When editing, it is useful to save a new copy of your extended essay (for example, EE draft 2) so that you can track any changes that you make. Also, if anything were to happen to your new copy, you always have the previous copy and notes from the meeting to re-do any changes. We recommend doing this on Googledocs whether changes are saved real-time on the servers so you don’t lose precious work if your computer crashes.

Step 8: Final Notes

Once you are done with your initial drafts, ensure that you have professional presentation, consistent formatting, and proper citations. Make sure that you have included page numbers and a bibliography (if required). Additionally, make the layout justified, font and size, as well as double spaced as per IB requirements. You have to include a cover page with a title, your research question, word count and subject. You also have to meet your supervisor the final time to fill out your viva voce (oral) section of the RPPF before the final submission.

Step 9: Final Submission

When submitting your extended essay, ensure that your name, candidate number and your school’s name are not on the document. This will ensure that your EE is marked fairly without prejudice. Your EE is electronically stamped and the IB can track who it belongs to, as is your RPPF.

We wish you the best of luck with your extended essay and hope you enjoy the process. If you would like help with your extended essay, please take a look at our courses or contact us for more information. We also offer IB tuition for various subjects and University applications mentoring and are more than happy to tailor our classes to your needs and requirements!

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Extended Essay Writers

How to Write an Economics Extended Essay? A Complete Guide

Luke MacQuoid

Today, I’d love to share my insights on how to make an impressive Economics extended essay. According to general IB criteria, it’s about showcasing your knowledge and getting into your topic. So, where should you start?

Introduction to the Economics Extended Essay

From my experience, the extended essay is your chance to demonstrate critical thinking, research skills, and genuine interest in your subject. And believe me, there’s no better subject than Economics to showcase these abilities. Why? Well, economics constantly interacts with our daily lives, influencing our decisions and shaping our world.

The International Baccalaureate (IB) Economics extended essay has a maximum word count of 4,000 words. However, some sections are not included in it:

• The abstract.
• Footnotes and endnotes.
• Bibliography or works cited.
• Appendices.

Students must adhere to this word limit to avoid potential penalties in the assessment process. Always double-check the specific requirements and guidelines provided by the IB and your school to ensure compliance.

All Economics Extended Essay Features

Based on both general IB criteria and my experience with the IB program, here are some key features of an Economics extended essay:

• The research question should be sharply focused and relevant to economic theory. Ideally, the question will address microeconomic and macroeconomic perspectives, but it could focus solely on one.
• The essay should not just be descriptive but should apply relevant economic theories or concepts. For instance, if the topic is about market structures, discussing monopoly, oligopoly, perfect competition, etc., using supply and demand graphs and even mathematical calculations is apt.
• An Economics essay should be rooted in real-world data. It could involve case studies, statistical data, or surveys. Analyzing this data in the context of the chosen topic is vital.
• More than merely presenting data is required. The student should analyze, interpret, and evaluate the data in light of their research question. It involves discussing the data’s implications, limitations, and potential biases.
• Students should cite various sources , including textbooks, journal articles, news articles, and interviews. This section is crucial to demonstrate the depth and breadth of the research undertaken.
• The essay should reflect critical thinking by considering different viewpoints and assessing the strengths and weaknesses of arguments.
• If primary research is conducted, such as surveys or interviews, the student should consider the ethical implications and ensure that participants’ rights and confidentiality are respected.

In conclusion, an Economics extended essay requires a blend of theoretical knowledge, practical data analysis, and a deep understanding of the economic landscape. It’s a rigorous academic exercise, but it can be rewarding for IB students with the right approach and passion.

Choosing the Right Topic for Your Economics Extended Essay

Every IB student faces an age-old question: “Which topic should I choose for my Economics extended essay?” I’ve been there, and as someone who has spent considerable time around the IB system, I understand the gravity of this decision. With many potential IB extended essay Economics topics floating around, the choice can be overwhelming.

However, based on my insights, always let your passion guide you. Don’t just chase complex or trendy topics; ensure you are genuinely interested in the subject. The most insightful extended essay Economics ideas are often birthed from personal experiences or recent events that resonate with you. These subjects can provide a fresh perspective and often yield profound insights.

Aligning with Personal Interest

The world of Economics is vast and varied. From the ebbs and flows of international trade to the microcosm of local markets, a topic can kindle anyone’s curiosity. In my opinion, the passion with which you approach your subject can be a game-changer. An inspired researcher will undoubtedly dig deeper with more zest, leading to more significant insights. Remember those moments when a particular news headline about economic reforms or market shifts caught your attention? Therein might lie your perfect topic!

Feasibility and Scope

However, enthusiasm alone isn’t enough. From my experience, the feasibility of your chosen topic is paramount. You might be fascinated by a niche area of economics, but if there’s a shortage of research material or data, you could find yourself in a tricky spot. It’s balancing choosing a subject you love and ensuring enough information exists to support your claims. The general IB criteria prioritize evidence-based arguments, so having ample resources is crucial.

Here are some potential topics to consider:

• The impact of Brexit on the UK’s economic landscape.
• The economic implications of the gig economy.
• Green economics: The cost and benefits of sustainable energy.
• The influence of cryptocurrency on traditional banking.
• A study on the wage gap: Factors and future implications.
• The economic aftermath of the COVID-19 pandemic.
• Fast fashion and its economic and environmental costs.
• A comparative analysis of universal basic income models.
• The role of microfinance in developing economies.
• Economic consequences of population aging in Japan.
• The effects of automation and AI on employment rates.
• Tourism economics: A case study on [specific country or region].
• Price discrimination in online retailing.
• Economic challenges and opportunities of hosting the Olympics.
• The role of government interventions in preventing economic recessions.

Choosing a topic for your Economics extended essay is a significant first step in wrapping up. Take your time to follow your interests, but always be practical in ensuring you have the resources and scope to produce an insightful paper.

Structuring Your Essay: How to Get the Highest Grade

Once you’ve picked a topic, the next step is understanding how to structure an Economics extended essay.

Crafting a Strong Introduction

From my years around the IB community, I’ve seen countless essays; trust me, first impressions count! Your introduction is more than just a paragraph — it’s your audience’s first taste of your work. Start by setting the context; why did you choose this topic? What relevance does it have in today’s world?

Then, concisely present your research question. This initial clarity not only piques the interest of your reader but also firmly establishes the path you’re about to tread upon. An introduction is like the cover of a book; it should invite the reader to turn the page.

Building a Compelling Body

In this section, you lay out your arguments, analyses, and findings. Each paragraph should have a distinct point seamlessly linked to the next. But how do you ensure your ideas hold water? The answer is evidence. Whether it’s data from renowned economic journals, findings from credible institutions, or even case studies, always back up your claims. Here are a few additional tips:

• Clarity is Key . Use concise and clear language. Avoid jargon unless necessary, and always explain complex concepts.
• Stay Objective . While it’s okay to have a stance, ensure your essay is balanced, considering various perspectives and counterarguments.
• Proofread . A simple yet often overlooked step. Ensure your essay is free from grammatical errors and is coherently structured.

Using good sources for an Economics extended essay is like constructing with quality bricks; it strengthens your narrative. Remember to not just present data but interpret it. Ask yourself, “What story is this data telling? How does it relate to my research question?” From my experience, this analytical approach differentiates good essays from great ones.

Concluding with Impact

In my opinion, a conclusion is not an end but a new beginning. Instead of a mere summary, offer your readers a fresh insight or a different perspective based on your findings. It may raise additional questions that future researchers might consider. What are the broader implications of your research in the grand scheme of things? A firm conclusion leaves a lasting impression, making readers reflect upon your work long after reading.

Tips and Tricks for a Stellar Extended Essay

From my experience, a few strategies can improve your paper. While good extended essay topics for Economics are crucial, how you present them is equally vital.

Need help with your IB extended essay?

From research and analysis to structuring and editing, our skilled mentors will be by your side, helping you craft an exceptional extended essay that not only meets the wordcount and stringent IB criteria but also reflects your passion for selected IB group .

Engaging Your Audience

One thing becomes crystal clear: the importance of connection. Your examiners sift through many essays, so what can make yours memorable? Originality, yes, but also the art of storytelling. Incorporate real-life examples and thought-provoking questions that give a human touch to economic theories. Each paragraph should pull the reader into the next, creating a seamless flow of ideas. Remember, it’s not just about what you say but how you say it.

Ensuring Originality

The heart and soul of the IB program lie in its emphasis on original thought. Plagiarism is a strict no-no, but originality goes beyond that. It’s about showcasing your unique perspective, analytical prowess, and personal reflections. While secondary research will form the backbone of your essay, your interpretations, conclusions, and insights should stand out, offering a fresh perspective on a well-trodden topic.

Critical Evaluation

Always question your sources and the data you encounter. Instead of accepting information at face value, get into its implications, biases, and limitations. Critical evaluation showcases your ability to think beyond the obvious and challenges the status quo, a trait highly valued in the IB criteria.

Crafting a remarkable Economics extended essay is no small feat. But with passion, the right resources, and a clear structure, it’s an enriching experience. So, to all budding economists, I wish you the best of luck on this academic adventure!

This article serves as a guide, combining my years of experience as an IB tutor at ExtendedEssayWriters.com with essential tips to help students write a stellar Economics extended essay . Remember, the path is as significant as the destination!

Luke MacQuoid has extensive experience teaching English as a foreign language in Japan, having worked with students of all ages for over 12 years. Currently, he is teaching at the tertiary level. Luke holds a BA from the University of Sussex and an MA in TESOL from Lancaster University, both located in England. As well to his work as an IB Examiner and Master Tutor, Luke also enjoys sharing his experiences and insights with others through writing articles for various websites, including extendedessaywriters.com blog

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Economics Extended Essay Topic Ideas for IB Students

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The International Baccalaureate Extended Essay in Economics can cover a wide range of topics. However, the choice of topic must enable the student to apply a range of economic theories and concepts to address a research question. 

This will be a long read, but everyone will likely find a good idea of the topic and research question for their Economics extended essay.

Extended essay in Economics topic categories

The IB Economics EE is expected to demonstrate a good understanding of the subject and the application of economic theory to real-world situations .

Btw…if you need assistance, you can always count on our extended essay writing service at Writing Metier. We will help you with your Economics extended essay.

Here are 12 potential categories for IB Economics Extended Essay topics:

• Market Structures (e.g., Monopolies, Oligopolies)
• Market Failure (e.g., Externalities, Public Goods)
• Elasticity (e.g., Price Elasticity of Demand/Supply)
• Economic Cycles (e.g., Business Cycles, Economic Growth)
• Fiscal Policy (e.g., Government Spending, Taxation)
• Monetary Policy (e.g., Interest Rates, Money Supply)
• Trade Policies (e.g., Tariffs, Trade Agreements)
• Exchange Rates (e.g., Currency Fluctuations, Foreign Exchange Markets)
• Balance of Payments (e.g., Current Account, Capital Account)
• Measures of Development (e.g., GDP, HDI)
• Poverty and Inequality (e.g., Income Distribution, Poverty Alleviation Strategies)
• Sustainable Development (e.g., Environmental Sustainability, Social Sustainability)
• Consumer Behavior (e.g., Bounded Rationality, Heuristics)
• Nudge Theory (e.g., Choice Architecture, Incentives)
• Market Behavior (e.g., Bubbles, Herd Behavior)
• Wage Determination (e.g., Minimum Wage, Bargaining)
• Labor Markets (e.g., Unemployment, Labor Mobility)
• Human Capital (e.g., Education, Training)
• Resource Management (e.g., Renewable Resources, Conservation)
• Environmental Policies (e.g., Carbon Tax, Emissions Trading)
• Cost-Benefit Analysis (e.g., Environmental Impact Assessments)
• Healthcare Systems (e.g., Insurance, Public vs. Private Provision)
• Health Outcomes (e.g., Life Expectancy, Quality of Life)
• Health Policies (e.g., Regulation, Subsidies)
• Government Expenditure (e.g., Public Goods, Welfare)
• Taxation (e.g., Progressive vs. Regressive Taxes)
• Fiscal Federalism (e.g., Central vs. Local Government Finance)
• Firm Behavior (e.g., Mergers, Acquisitions)
• Market Regulation (e.g., Antitrust Laws, Competition Policy)
• Innovation and Technology (e.g., R&D, Patents)
• Financial Markets (e.g., Stock Markets, Bond Markets)
• Financial Instruments (e.g., Derivatives, Futures)
• Financial Regulation (e.g., Banking Regulation, Financial Crises)
• Economic Thought (e.g., Classical, Keynesian)
• Economic History (e.g., Historical Economic Development, Historical Crises)
• Methodological Issues (e.g., Econometrics, Qualitative vs. Quantitative Analysis)

Each of these categories can be further refined into specific research questions suitable for an extended essay . Below, I’ll be providing some ideas for your ease.

The choice of topic should be such that it allows for a systematic investigation that can be effectively analyzed using economic theories and data. 

It’s also essential to ensure that the topic is narrow enough to be addressed within the word limit and broad enough to allow for an in-depth analysis.

Economics IB EE Topic Ideas and Research Questions

Starting with Microeconomics, we’re zooming in on the nitty-gritty of individual markets and how they tick. 

Microeconomics Topics and Research Questions

We’ve got our classic battles of market structures—monopolies holding the fort, oligopolies playing chess with each other, and perfect competition being the ideal we rarely meet.

Then there’s the whole drama of market failure, where things get messy with externalities and public goods, and no one’s quite sure who should clean up the mess. 

And elasticity? It’s like the pulse check of the market, seeing how it reacts to price changes. It’s all about the small scale, the details, the fine print.

Market Structures

Topic:  The impact of local monopolies on consumer choice in rural areas.

Research Question:  How do local monopolies in rural areas affect consumer choices and prices?

Topic:  The competitive strategies of oligopolies in the smartphone industry.

Research Question:  What competitive strategies do oligopolies in the smartphone industry use to maintain market share?

Topic:  The prevalence of monopolistic competition in the fast-food industry.

Research Question:  How does monopolistic competition influence product variety in the fast-food industry?

Market Failure

Topic:  The role of government in addressing negative externalities in urban transport.

Research Question:  How effective are government interventions in reducing traffic congestion as a negative externality in urban areas?

Topic:  The effectiveness of public goods provision in rural education.

Research Question:  How does the provision of education as a public good affect educational outcomes in rural areas?

Topic:  The impact of plastic bag taxes on environmental externalities.

Research Question:  Have plastic bag taxes significantly reduced the environmental externalities associated with plastic waste?

Topic:  Price elasticity of demand for organic produce in urban markets.

Research Question:  How does the price elasticity of demand for organic produce affect consumer purchasing patterns in urban markets?

Topic:  Cross-price elasticity between electric cars and fossil fuel vehicles.

Research Question:  What is the cross-price elasticity of demand between electric cars and fossil fuel vehicles, and what does it imply for future sales?

Topic:  The elasticity of supply in the housing market during economic booms.

Research Question:  How does the elasticity of supply in the housing market respond to economic booms?

Macroeconomics Topics and Research Questions

But then we step back and look at the big picture with Macroeconomics. Here we’re talking about the economy’s heartbeat—those business cycles that keep us on our toes, wondering if we’re heading for a boom or bracing for a bust. 

Governments step in with their fiscal policies, wielding taxes and spending like surgeons trying to fix the economy without making it bleed out. 

And let’s not forget the central banks, playing with interest rates and money supply like some high-stakes game of poker.

Economic Cycles

Topic:  The impact of economic cycles on unemployment rates in industrial sectors.

Research Question:  How do different phases of economic cycles affect unemployment rates in the manufacturing sector?

Topic:  The correlation between economic growth and income inequality.

Research Question:  Is there a significant correlation between economic growth and the level of income inequality in developed countries?

Topic:  The role of technological innovation in driving economic cycles.

Research Question:  To what extent does technological innovation influence the length and magnitude of economic cycles?

Fiscal Policy

Topic:  The effectiveness of fiscal stimulus in recession recovery.

Research Question:  How effective are fiscal stimulus packages in accelerating recovery from recessions?

Topic:  The impact of taxation on small businesses and economic growth.

Research Question:  What is the impact of changes in small business taxation on economic growth?

Topic:  Government spending priorities and their impact on long-term economic growth.

Research Question:  How do government spending priorities influence long-term economic growth?

Monetary Policy

Topic:  The effects of interest rate changes on consumer spending.

Research Question:  How do changes in the central bank’s interest rate affect consumer spending patterns?

Topic:  The relationship between money supply growth and inflation.

Research Question:  What is the relationship between the growth of money supply and the rate of inflation in emerging economies?

Topic:  Central bank policies and their impact on currency exchange rates.

Research Question:  How do central bank policies in developed countries affect their currency exchange rates?

Each of these topics and research questions can be tailored to fit the specific requirements of an IB Economics Extended Essay , including the availability of data, the scope of the research, and the word count limitations. 

It’s important to conduct preliminary research to ensure that there is enough material to support the investigation.

Next stop, International Economics. This is where countries shake hands or sometimes wrestle over trade policies. 

International Economics Topics and Research Questions

Tariffs, trade agreements, and who gets the better deal—it’s like a global marketplace where everyone’s trying to haggle their way to prosperity. 

Exchange rates bounce around like ping pong balls, and the balance of payments tells us who’s spending too much on their credit card and who’s got money in the bank.

Trade Policies

Topic:  The impact of trade tariffs on the domestic automobile industry.

Research Question:  How have recent changes in trade tariffs affected the competitiveness of the domestic automobile industry?

Topic:  The effectiveness of free trade agreements in promoting economic growth.

Research Question:  What has been the impact of free trade agreements on the economic growth of member countries?

Topic:  The role of trade policies in protecting local agriculture.

Research Question:  How do trade policies affect the sustainability and profitability of local agricultural sectors?

Exchange Rates

Topic:  The effects of exchange rate fluctuations on the tourism industry.

Research Question:  How do exchange rate fluctuations impact the number of international tourists and tourism revenue?

Topic:  Currency wars and their impact on global trade.

Research Question:  What are the consequences of competitive devaluations, often referred to as ‘currency wars’, on global trade dynamics?

Topic:  The relationship between commodity prices and currency strength in exporting countries.

Research Question:  How do fluctuations in commodity prices affect the exchange rate of commodity-exporting countries?

Balance of Payments

Topic:  The impact of remittances on the balance of payments in developing countries.

Research Question:  What role do remittances play in the balance of payments of developing countries?

Topic:  Foreign Direct Investment (FDI) and its effect on the current account balance.

Research Question:  How does FDI influence the current account balance of emerging economies?

Topic:  The effects of tourism on the balance of payments in small island economies.

Research Question:  What is the significance of tourism revenue in the balance of payments of small island economies?

Then we get into the meaty issues with Development Economics. 

Development Economics Topics and Research Questions

It’s all about asking, “Are we getting better?” We measure development with things like GDP and the Human Development Index, but they don’t always tell the full story. 

We’re also tackling the tough stuff like poverty, inequality, and whether we can keep growing without trashing the planet. It’s about making sure progress today doesn’t rob tomorrow.

Measures of Development

Topic:  The correlation between GDP growth and improvements in Human Development Index (HDI) scores.

Research Question:  Does GDP growth have a significant correlation with improvements in HDI scores?

Topic:  The effectiveness of Gross National Happiness (GNH) as an alternative development measure.

Research Question:  How does GNH compare to GDP as a measure of development, and what are its implications for policy-making?

Topic:  The impact of technological advancement on economic development indicators.

Research Question:  What is the impact of rapid technological advancement on traditional economic development indicators?

Poverty and Inequality

Topic:  The effectiveness of microfinance in reducing poverty in rural areas.

Research Question:  To what extent has microfinance contributed to poverty reduction in rural communities?

Topic:  Income inequality and educational outcomes in urban environments.

Research Question:  How does income inequality within urban areas affect educational outcomes?

Topic:  The role of gender inequality in economic development.

Research Question:  What is the impact of gender inequality on economic development in developing countries?

Sustainable Development

Topic:  The economic impacts of transitioning to sustainable energy sources.

Research Question:  What are the short-term and long-term economic impacts of transitioning to sustainable energy?

Topic:  The role of sustainable agriculture in promoting food security.

Research Question:  How does sustainable agriculture contribute to food security and economic development?

Topic:  The cost-benefit analysis of environmental conservation measures.

Research Question:  What are the economic benefits and costs associated with environmental conservation measures?

Behavioral Economics Topics and Research Questions

Now, let’s talk about what makes people tick with Behavioral Economics. This is where we realize that humans aren’t always the rational robots some theories make us out to be. 

We’ve got our quirks—bounded rationality, heuristics, and sometimes we follow the herd off a cliff in a market bubble. It’s fascinating because it’s about the psychology behind the economics.

Consumer Behavior

Topic:  The influence of social media on consumer purchasing decisions.

Research Question:  To what extent does social media influence consumer behavior in the fashion industry?

Topic:  The impact of brand loyalty on price elasticity.

Research Question:  How does brand loyalty affect the price elasticity of demand for consumer electronics?

Topic:  Behavioral factors influencing impulsive buying behavior.

Research Question:  What behavioral factors are most significant in influencing impulsive buying behavior in online retail?

Nudge Theory

Topic:  The effectiveness of nudges in promoting healthy eating habits.

Research Question:  How effective are nudging strategies in changing consumer eating habits in school cafeterias?

Topic:  The role of default choices in retirement savings plans.

Research Question:  What is the impact of default options on the participation rates in employer-sponsored retirement savings plans?

Topic:  The use of framing effects in environmental policy compliance.

Research Question:  How do framing effects influence compliance with environmental policies among households?

Market Behavior

Topic:  The impact of investor sentiment on stock market bubbles.

Research Question:  To what extent does investor sentiment contribute to the formation and bursting of stock market bubbles?

Topic:  Herd behavior and its influence on cryptocurrency markets.

Research Question:  How does herd behavior manifest in the trading patterns of cryptocurrency markets?

Topic:  The role of overconfidence in financial market trading.

Research Question:  What is the role of overconfidence bias in the decision-making processes of individual investors in financial markets?

Each of these topics and research questions should be carefully considered and refined to ensure that they are feasible for an extended essay , with a clear focus and available data for analysis.

Labor Economics Topics and Research Questions

Shifting gears to Labor Economics, we’re in the world of work. Wages aren’t just about money; they’re about bargaining power, fairness, and sometimes just sticking to the minimum. 

The labor market’s a tough crowd, with unemployment and the quest for the right job in the right place. 

And human capital reminds us that it’s not just about filling positions but nurturing talent through education and training.

Wage Determination

Topic:  The impact of minimum wage increases on small business employment levels.

Research Question:  What is the effect of minimum wage increases on employment levels in the small business sector?

Topic:  Wage bargaining and gender pay disparity in the technology sector.

Research Question:  How does wage bargaining contribute to the gender pay gap in the technology industry?

Topic:  The influence of trade unions on wage determination in the automotive industry.

Research Question:  What role do trade unions play in shaping wage determination in the automotive industry?

Labor Markets

Topic:  The effects of automation on unemployment rates in manufacturing.

Research Question:  How has the increase in automation impacted unemployment rates in the manufacturing sector?

Topic:  Labor market flexibility and its impact on economic resilience during recessions.

Research Question:  How does labor market flexibility affect a country’s economic resilience to recessions?

Topic:  The role of labor mobility in regional economic development.

Research Question:  What is the impact of labor mobility on economic development in economically depressed regions?

Human Capital

Topic:  The return on investment in higher education for various fields of study.

Research Question:  What is the comparative return on investment in higher education across different fields of study?

Topic:  The impact of vocational training programs on employability in the service sector.

Research Question:  How do vocational training programs affect employability and income levels in the service sector?

Topic:  The correlation between educational attainment and labor productivity.

Research Question:  How does the level of educational attainment correlate with labor productivity in the tech industry?

Breathing in some fresh air, we move to Environmental Economics. 

Environmental Economics Topics and Research Questions

Here’s where we figure out how to play nice with nature. Managing resources, setting up environmental policies like carbon taxes, and doing the math to see if the benefits of saving a forest are worth the cost. 

It’s economics going green.

Resource Management

Topic:  The economic viability of renewable energy sources in rural communities.

Research Question:  What are the economic challenges and benefits of adopting renewable energy sources in rural communities?

Topic:  The impact of water resource management on agricultural productivity.

Research Question:  How does effective water resource management influence agricultural productivity and economic sustainability?

Topic:  The effects of conservation policies on the forestry industry.

Research Question:  What economic impact do conservation policies have on the forestry industry?

Environmental Policies

Topic:  The effectiveness of carbon taxes in reducing greenhouse gas emissions.

Research Question:  How effective have carbon taxes been in achieving their intended reductions in greenhouse gas emissions?

Topic:  The economic impacts of emissions trading schemes on heavy industries.

Research Question:  What are the economic consequences of emissions trading schemes for heavy industries?

Topic:  The role of environmental regulations in shaping the automotive industry.

Research Question:  How have environmental regulations influenced innovation and economic outcomes in the automotive industry?

Cost-Benefit Analysis

Topic:  The cost-benefit analysis of urban green space preservation.

Research Question:  What are the economic costs and benefits of preserving urban green spaces?

Topic:  The economic evaluation of flood defense systems in coastal cities.

Research Question:  From an economic perspective, how do the costs and benefits of flood defense systems in coastal cities compare?

Topic:  The financial implications of biodiversity conservation programs.

Research Question:  What are the economic trade-offs associated with biodiversity conservation programs?

Health Economics Topics and Research Questions

Health Economics brings us to the crossroads of wealth and well-being. Healthcare systems are complex beasts, and we’re trying to tame them so that they can heal without causing financial heartache. 

We’re measuring health outcomes and life quality, all while navigating through the maze of health policies.

Healthcare Systems

Topic:  The economic effects of public versus private healthcare provision on quality of care.

Research Question:  How does the mode of healthcare provision (public vs. private) affect the quality of care and economic efficiency?

Topic:  The impact of insurance coverage on healthcare utilization rates.

Research Question:  How does the level of insurance coverage influence healthcare utilization rates among different socioeconomic groups?

Topic:  The cost-effectiveness of universal healthcare systems.

Research Question:  From a cost-effectiveness standpoint, how do universal healthcare systems compare to multi-payer systems?

Health Outcomes

Topic:  The economic burden of chronic diseases on healthcare systems.

Research Question:  What is the economic impact of the rising prevalence of chronic diseases on healthcare systems?

Topic:  The relationship between socioeconomic status and health outcomes.

Research Question:  How does socioeconomic status affect health outcomes across different regions?

Topic:  The impact of mental health services on workplace productivity.

Research Question:  What is the economic impact of providing mental health services on workplace productivity?

Health Policies

Topic:  The economic implications of pharmaceutical regulation on drug prices.

Research Question:  How do pharmaceutical regulations affect drug prices and the availability of new medications?

Topic:  The cost-benefit analysis of preventive healthcare measures.

Research Question:  What are the long-term economic benefits of investing in preventive healthcare measures?

Topic:  The effects of subsidies on the consumption of health-related goods.

Research Question:  How do subsidies for health-related goods (e.g., gym memberships, healthy foods) affect consumption patterns and health outcomes?

Public Sector Economics Topics and Research Questions

Public Sector Economics is where we see how the government tries to steer the ship. They’re spending on public goods and welfare, trying to keep the economy afloat without springing too many leaks. 

Taxation is a hot topic—progressive, regressive, who’s paying their way, and who’s getting a free ride? And with fiscal federalism, it’s a tug-of-war between local needs and central control.

Government Expenditure

Topic:  The impact of government spending on public goods on economic growth.

Research Question:  How does government expenditure on public goods such as infrastructure contribute to economic growth?

Topic:  The effectiveness of welfare programs in reducing poverty.

Research Question:  What has been the impact of welfare programs on poverty levels in developed countries?

Topic:  The economic consequences of military spending.

Research Question:  How does military expenditure affect the allocation of government resources and economic growth?

Topic:  The economic effects of progressive taxation on income distribution.

Research Question:  Does progressive taxation lead to a more equitable distribution of income?

Topic:  The impact of value-added tax (VAT) on consumer spending.

Research Question:  How does the implementation of VAT affect consumer spending patterns?

Topic:  The role of tax incentives in promoting renewable energy investments.

Research Question:  How effective are tax incentives in encouraging investment in renewable energy projects?

Fiscal Federalism

Topic:  The challenges of fiscal coordination between central and local governments.

Research Question:  What are the main challenges in achieving fiscal coordination between different levels of government?

Topic:  The impact of fiscal decentralization on local economic development.

Research Question:  How does fiscal decentralization affect economic development at the local level?

Topic:  The role of intergovernmental transfers in balancing regional disparities.

Research Question:  How do intergovernmental transfers help to address regional economic disparities?

Industrial Organization Topics and Research Questions

We’re watching firms and their power moves—mergers, acquisitions, and the regulatory hoops they have to jump through. 

It’s about keeping the market fair and innovative, making sure the big fish don’t eat all the little ones and that new ideas get a chance to grow.

Firm Behavior

Topic:  The economic rationale behind mergers and acquisitions in the tech industry.

Research Question:  What economic factors drive mergers and acquisitions in the technology sector?

Topic:  The impact of corporate governance on firm performance.

Research Question:  How does the quality of corporate governance affect firm performance and economic outcomes?

Topic:  The effects of vertical integration on market competition.

Research Question:  Does vertical integration by large firms lead to less competition in the market?

Market Regulation

Topic:  The effectiveness of antitrust laws in promoting fair competition.

Research Question:  How effective are antitrust laws in maintaining competitive markets?

Topic:  The economic impacts of deregulation in the airline industry.

Research Question:  What have been the economic outcomes of deregulation in the airline industry?

Topic:  The role of competition policy in fostering innovation.

Research Question:  How does competition policy influence the rate and direction of innovation in high-tech industries?

Innovation and Technology

Topic:  The relationship between R&D investment and economic performance in pharmaceuticals.

Research Question:  How does R&D investment correlate with economic performance in the pharmaceutical industry?

Topic:  The economic implications of patent laws on innovation.

Research Question:  What is the impact of patent laws on the rate of innovation in renewable energy technologies?

Topic:  The role of government subsidies in technological advancement.

Research Question:  How do government subsidies affect technological advancement in emerging industries?

Financial Economics Topics and Research Questions

Financial Economics is where the money’s at—literally. Stock markets, bond markets, the exotic world of derivatives—it’s all about the flow of money. 

And with financial regulation, we’re trying to keep the party responsible so that the financial hangover doesn’t hit too hard.

Financial Markets

Topic:  The impact of stock market volatility on economic decision-making.

Research Question:  How does stock market volatility influence corporate investment decisions?

Topic:  The role of bond markets in public debt management.

Research Question:  What role do bond markets play in the management of public debt?

Topic:  The effects of quantitative easing on financial markets.

Research Question:  How has quantitative easing affected financial markets post-2008 financial crisis?

Financial Instruments

Topic:  The use of derivatives in risk management by corporations.

Research Question:  How do corporations use derivatives to manage financial risk?

Topic:  The impact of futures trading on commodity price stability.

Research Question:  Does futures trading contribute to the stability of commodity prices?

Topic:  The role of cryptocurrency in the financial portfolio diversification.

Research Question:  How do cryptocurrencies affect the diversification of financial portfolios?

Financial Regulation

Topic:  The effectiveness of banking regulation in preventing financial crises.

Research Question:  How effective have banking regulations been in preventing another financial crisis?

Topic:  The economic effects of capital adequacy requirements on banks.

Research Question:  What are the economic effects of increased capital adequacy requirements for banks?

Topic:  The impact of international financial reporting standards on market transparency.

Research Question:  How do international financial reporting standards improve market transparency and economic outcomes?

Economic Methodology and History Topics and Research Questions

Lastly, we’ve got Economic Methodology and History. It’s a bit like time travel, seeing how past thinkers shape our current policies and how historical events steer us towards new economic shores. 

And methodology? It’s the toolbox that helps us figure out if what we’re doing actually makes sense, with all the number crunching and case studies that help us understand the why behind the what.

Economic Thought

Topic:  The influence of Keynesian economic policies on modern fiscal strategies.

Research Question:  How have Keynesian economic principles shaped contemporary fiscal policy-making?

Topic:  The relevance of classical economics in today’s market economy.

Research Question:  To what extent are the principles of classical economics applicable in the current market economy?

Topic:  The impact of behavioral economics on traditional economic models.

Research Question:  How has behavioral economics challenged the assumptions of traditional economic models?

Economic History

Topic:  The economic consequences of the 1970s oil shocks.

Research Question:  What were the long-term economic consequences of the oil shocks of the 1970s?

Topic:  The role of economic policies in the Great Depression.

Research Question:  How did economic policies contribute to the onset and duration of the Great Depression?

Topic:  The economic impacts of the dissolution of the Soviet Union.

Research Question:  What were the economic impacts of the dissolution of the Soviet Union on Eastern European countries?

Methodological Issues

Topic:  The application of econometrics in evaluating fiscal policy.

Research Question:  How can econometric models be used to evaluate the effectiveness of fiscal policy?

Topic:  The challenges of qualitative analysis in economic research.

Research Question:  What are the main challenges associated with using qualitative analysis in economic research?

Topic:  The comparison of case study and statistical methods in economic analysis.

Research Question:  How do case study methods compare to statistical methods in the analysis of economic phenomena?

So, there you have it—a whirlwind tour through the interconnected world of economics extended essay topics. 

Each piece of the cake tells part of the story, and it’s only when you put them all together that you see the full tasty picture. What’s your take on all this?

If you need some other IB EE topic options, we also have many other articles with various extended essay topic ideas . Do not miss a chance to check some that may interest you.

Conclusion 

I would have continued with other options, but I believe this list of Economics extended essay topic ideas are quite enough for today. Good luck with your RQ selection, research and writing .

If you find a better article that provides more comprehensive and detailed suggestions for Economics extended essay topic ideas, share it with me 😉

If you need topic suggestions with outlines or assistance with writing a custom IB Economics EE, our IB experts at Writing Metier are always ready to assist you.

Simply contact us using our contact form or fill out the order form with details to your economics extended essay and our IB experts will land you a hand.

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Vasyl Kafidoff is a co-founder and CEO at WritingMetier. He is interested in education and how modern technology makes it more accessible. He wants to bring awareness about new learning possibilities as an educational specialist. When Vasy is not working, he’s found behind a drum kit.

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• Annotated extended essay sample 2
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Classroom activity

Read the extended essay below, which came from one of my former Economics students.  After doing so, apply the extended essay rubric and justify your marks. My comments are on the next page as well as an annotated copy of the EE.

Title : To what extent does the Palandöken Ski Center actively practise price discrimination?

Word count : 3897 words

Introduction

Erzurum Palandöken Ski Center is an important tourist attraction of Turkey in which there are 22 ski tracks, 5 hotels and about 5000 visitors every day. It is the best ski center in Turkey for skilled skiers because of the steepness of slopes, quality of snow, length of trail etc. This makes Palandöken Ski Centre a popular destination for tourists and the resort welcomes visitors from all over the world, including Turkey.

There are 5 hotels which sell tickets to the ski lifts, rent ski equipment to visitors as well as hotel rooms to the visiting tourists and local people.  For my essay, I will focus on whether the resort hotels use price discrimination as a method of maximising their sales revenues. To investigate this price discrimination, I will compare the prices paid by three different groups of customer – Turkish residents of Erzurum, Turkish people living in other cities of Turkey and foreigners. It is my opinion that the hotels will actively pursue price discrimination, charging lower prices to locally based customers.  This is based on my own experience having spoken to foreign tourists and asking them how much they paid for those items.

My essay will be based firstly on secondary research where I will outline the theory behind price discrimination and secondly, I will conduct a series of short interviews and surveys to collect my data. I intend to test my thesis and answer the question:

 “To what extent does the Palandöken Ski Centre actively practise price discrimination?”

The reason why I have chosen this topic is because I have been a keen skier since I was 8 years old and I have been skiing for 9 years. I also enjoy speaking to foreigners and sharing experiences with them.  I will enjoy working on this essay.

Methodology

In writing this essay, I intend to complete the following:                                                    

Firstly, I will complete my secondary research where I will summarise ‘Price Discrimination’.  After completing my secondary research I will start my primary research which will be based on surveys of customers at the ski centre as well as interviews with hotel owners and the salesmen who rent ski equipment.  I will start by going to Palandöken Ski Centre to check the price of accommodation, ski equipment and ski lifts.

I will record this data and then choose 10 people from Erzurum, 10 from other cities of Turkey (who are here as tourists) and 10 foreigners. Then I will ask this sample to fill in a short questionnaire where they will detail the price that each paid for their accommodation, ski lifts and ski equipment.

Finally, I will make a table to record all the data. This data table will help me to compare the results and decide whether my results support my hypothesis or not.  I intend to use the data as the basis for my in depth questionnaires, which will also help me to form my conclusions.

Lastly, having collected all of my data I will attempt to reach a conclusion as to the question: “To what extent does the Palandöken Ski Centre actively practise price discrimination?”

What is Price Discrimination?

Price discrimination is the way of selling in which the producer charges different prices to different consumers for the exact same product or service. For example a cinema may charge a lower price for students but a higher price for the adults.  In this case there is a price discrimination caused by the age of the two consumers. For a producer there should be three conditions which are listed below so that the producer can be able to price discriminate:

• To be able to price discriminate easily, the producer should have the price-setting ability. The more price-setting ability the producer has, the easier to price discriminate. Price discrimination generally occurs in imperfect markets rather than the perfect competition. That is why price discrimination mostly occurs in monopoly and oligopoly.This is because the more competitive the market and the more firms in the industry, the less ability each firm has to control prices – i.e. they become price takers, not price makers.
• A product with inelastic demand would generally be easier to price discriminate. This is because the more important a product is to a consumer, then the easier it to charge them higher prices. So another condition for price discrimination is that the consumers should have different price elasticities of demand for the product.
• The third condition is that the producer must be able to separate the consumers so that the segment(s) that pays a lower price for a product must not be able to resell the product on to a customer paying a higher price for the same product.

In order for producers to price discriminate, they must be able to separate the different markets by using the ways listed below:

• Time: Some consumers may be ready to pay higher prices at some certain times. For example a hotel may have more visitors at weekend rather than weekdays so the producer, in this case the hotel room, may charge lower prices at weekdays but higher prices at weekend. If the hotel can set the price correctly and discriminate the price well, they can maximise their revenue.
• Age: Different ages may pay different prices for the exact same product or service. For example an airline company may charge less to a child than an adult for the flight ticket. The reason is that children has lower income so that their demand for the flight ticket is more price elastic.
• Income: Some firms may change prices according to the income level of the customer. Under this method, people with higher incomes (e.g foreign tourists) would pay more than people with lower incomes (Erzurum residents). Another example might be a university charging lower tuition fees for a student with lower income and higher tuition fees for a student with higher income.
• Types of the consumer: A firm that sells their product to the different consumers charges different prices to these consumers. Firms determine different rates for the different types of the consumer and these rates are determined with respect to the elasticities of demand of the consumer. For example ski resorts may charge different prices to foreign tourists than local consumers, because the hotel believes that foreign tourists and local residents have different PEDs, i.e. tourists are simply more willing and able to purchase the hotel at a higher price than the local resident.

In order to discriminate the price, at least three of the above conditions above should exist; if not price discrimination will not be possible. Generally people think that sales promotion is also a type of price discrimination but actually it is the shrewd attitude of the seller in order to attract the customers. For example nightclubs’ idea of taking the girls in with a lower price is actually a way for them to attract more boys to come in their nightclubs. In this sense sales promotion is not included to price discrimination.

Types of Price Discrimination

There are three levels of price discrimination to be considered:

First Degree Discrimination

For the Figure 1.1, to the right, the trader sells the product to different consumers at different prices. If that trader sells his product with the price where MC=MR, he would receive a revenue which is only the pale blue area but if the trader sells his products by discriminating the price, selling with higher prices to tourists, he will also get the dark blue triangle as a revenue. In this case the hotel will charge higher prices during the peak season when demand is higher and less during the off peak season.  This method effectively charges different prices for the same hotel room, depending on the time of the season that they want it.

Second Degree Discrimination

This is basically charging different prices depending on the quantity consumed.  (Philips, 1999)

For the Figure 1.2 the GSM company decreases the price if the user sends more than 50 messages per month. Normally if the price stays the same GSM Company should get only the pale blue rectangle as a revenue but by discriminating the price they could also earn the dark blue rectangle as a profit.  Relating this method of discrimination to my essay, the hotel would charge a lower daily rate to visitors staying longer periods. As the consumers are willing and able to stay more, then the hotel will charge these consumers less per night which will help hotel to maximise their profits. In my research the quantity stands for the number of nights that consumers will stay.

Third Degree Discrimination

This means charging different prices depending on a particular market segment, e.g. age profile, income group, time of use.  examples of each are shown on the diagrams below:

Here in figure 1.3, above the cinema knows that students have more price elastic demand for going to the cinema because they have lower income. I.e. they are more sensitive to price than people in fulltime employment.  In this sense they charge lower prices to students, by contrast they charge higher to adults since they have higher income. In this example the student price would be 7.5 TL and the adult price 10.25.  Both prices are higher than the marginal cost of the ticket at 5TL.  If the cinema did not price discriminate they would have to charge either 7.5 TL and miss out on additional revenue from adults or charge 10.25 and have lower demand from students.  In this way consumer surplus is reduced and profits are raised as the cinema is filled with discounted tickets, rather than having this segment ignore the cinema.

Investigation

How can palandoken resort hotels use price discrimination.

It is my belief that Palandöken hotels are able to use first, second and third degree price discrimination because they are able to separate the market.  For my essay I will presume that there are three different types of customer – local residents (people living in Erzurum), Turkish tourists from Istanbul, Izmir and other wealthy Turkish cities as well as foreign (i.e. non-Turkish speaking) tourists.

The reason why foreigners cannot simply get Turkish people to purchase their hotel rooms is that the identity card of the customers are needed during the check in process. This is really important for hotels since they separate their market in this process. The identity card gives enough information about the nationality of the customer so that hotels are getting information in order to practise third degree price discrimination. This process enables hotels to separate the Erzurum residents from Istanbul and other wealthy Turkish cities’ residents. Distinguishing them from foreigners is very easy.  They are looking at the hometown of the customer and trying to offer the best price, based on what they believe customers are willing and able to pay.

Primary Research Findings

The survey that I completed in Palandöken Ski Center shows the price discrimination clearly. Data tables are created and shown below:

Finally the last table shows the prices paid by foreign tourists:

Note: Subjects with (*) near them are taken towards the end of the season. (March 15, 2015)

The Following tables are illustrated in the following three graphs:

Average percentage change of the above data is as follows calculated by the formula:

average price of a hotel room paid by foreigners - average price paid for the same room by local residents / average price paid by local residents x 100 will provide us with the average level of discrimination paid by foreign tourists at the ski hotels.

In this investigation, there had been 10 sample prices for each of the 3 types of costumers: Local residents, people from different cities and foreigners. All the data are from two different weeks in which one of them is taken during the ski season and the other one is taken towards the end of the ski season. (Marked with “*” sign.)

According to the results, in the ski season, people from other cities of Turkey pay approximately same price (0%) with the local residents. On the other hand, foreigners pay approximately 18.2796% more than the local residents. Towards the end of the season this percentage falls to 8.4507%.

Data tables above have shown that customers have paid different prices for the same product or service at a given time. This shows that hotels are practising the price discrimination depending on the criteria listed in the introduction part. According to the tables above there are two factors that the hotels use to separate the markets: Income, based on the nationality of the customers and the time, based on the ski season when more or less customers are willing and able to pay for their goods and services.

Starting from the income of the customers, results show that local people pay the least price compared to the people from other cities and the foreigners. This result depends on the fact that local people earn less than the rest of the country and foreigners because of the cheaper living standards as a result of the geographical position of Erzurum which is the east part of the Turkey.

People from the other cities of Turkey pay slightly more than the local residents. This result depends on the fact that as you go from east to west part of the Turkey, the living standards rise and causes an increase in the wages. As a result of a difference in wages, hotel management sets different prices for the customers coming from different parts of the Turkey. Within the results of the people from other cities of Turkey, the hypothesis of “the prices rise as you go from east to west” is supported. In fact, not the geographical position of the city but the importance of the city and living standards determine the price of the hotels. According to the results taken from the questionnaire, people in Istanbul which is the most well-known and expensive city of Turkey pay more than anyone in the Turkey as a result of the highest wages in the country. Ankara is the second city that pays more than other cities of Turkey. This is because Ankara is the capital city of Turkey and like İstanbul, Ankara is also an expensive city which is a result of higher wages. Rest of the results for the other cities of Turkey, the prices are approximately same with the local residents which might seem a little bit strange. According to the price discrimination logic, people from different cities of Turkey other than Erzurum are supposed to pay more than the local residents. Probably; since the skiing is a luxury activity, hotel management thinks that local people who prefer to lodge in the hotel although they have their house in the city are willing and able to pay more for the goods and services of the hotel; so the hotel management considers these customers as customers who came from the other cities of Turkey and charge the same as the other people pay.

Foreigners are the customers who pay the highest prices for the hotels. This can be explained by the price elasticity of demand theory. The theory says that quantity demanded for a product or service responses to the change in price. In this investigation, it is known that tourists have lower price elasticity than the people from other cities of Turkey and the local people. This means tourists’ demand for the hotels will have a slight change for the increase in prices of the hotels. A lower PED is caused by the same theory of the people who live in the big and expensive cities of Turkey and the local people: Foreign people earn more money compared to the people in Turkey and also the difference in the currency provides them a chance to have a more valuable money in Turkey. When the foreigners are compared within themselves, it can be seen that American people pay more money than any other foreigners which shows that American people have the least price elasticity. Most of the customers from the European countries pay the same prices because of a similar price elasticities. Only Russian customer pays less than the other European countries probably because of the wide range of skiing opportunities in Russia. Hotel management sets a different and a cheaper price for the Russian people in order to attract them for their hotels instead of the hotels in Russia. The customer from the England is an exceptional sample in which he is capable of talking in Turkish. Normally, a British customer is supposed to pay a price similar to the American; however the hotel management set a lower price closer to the local people in order to appeal the customer.

The other factor that hotels use to price discriminate is the time of the year. The data in the tables show that towards the end of the skiing season the prices are lower than the normal skiing season. Price elasticity of demand theory can be used to explain the discrimination applied according to the time. In a normal season, there is a very high demand for the hotels so that although prices are very high, customers are willing and able to pay for the higher prices. Excess demand for the hotel rooms provides a chance for the hotel management to raise the price for their hotels by a logic that customers are ready to pay more. However, towards the end of the season, demand for the hotel room falls and this causes an excess supply. As a result of an excess supply, hotels lower the prices in order to attract more customers even if it is the end of the skiing season.

Having identified what I believe is evidence of price discrimination I wanted to test my theory by interviewing the manager of one of the most popular hotels, which I arranged on.

The manager of the Dedeman Hotel stated that they have 4 types of booking which are the ways of communicating with customers in order to practise price discrimination:

• Online booking
• Booking by telephone
• Booking in the hotel (Face to face)
• Regular Customers

He stated that it is very important for them to be able to practise price discrimination. A closer look at the booking types shows that the hotel charges different prices to different customers. For the online booking they reserve a limited number of rooms and the price for the rooms are determined transiently by the online receptionist according to the number of remaining rooms. For example a price of a room in the online booking can be 200 Turkish Liras when there are 10 rooms left and the price can go up to 250 when there is only 1 room left.  This would be similar to first degree price discrimination, as the airlines do.  Mr. Akca, the manager of the hotel, said that the prices for online booking are determined in a meeting of the board of directors and then applied in the booking websites such as “www.booking.com“ , “www.trivago.com” etc.

However the same process does not work for the booking by telephone. While people are booking for their rooms by telephone, the receptionist firstly asks where they are calling from in order to separate the customers. Mr. Akca says that after they have learned the hometown of the consumer, they are considering whether the hometown is wealthy or not and only then do they inform the consumers about the price.  He outlined that there is not much difference in price between customers from Erzurum or customers from other Anatolian cities however they do apply a small difference if they are calling from Ankara, İstanbul and Izmir.  These customers pay more and this difference comes from the income level of these cities, which are generally higher than the income of people from Erzurum or other Anatolian cities. In this sense the hotel believes that they are more willing and able to pay higher prices than the Anatolian cities’ customers.

While people are booking the hotel face to face, the prices go a little bit up. Mr. Akca explains this situation with these words: “When people come here for booking, we consider that they have only a few alternatives that is why they have to pay whatever the price we charge them is. As hotel administration we charge higher prices than normal but as always the price is negotiable. If they bargain with us, we may decrease the prices about 10-20 Turkish lira less.”

He also says that if the customer is a foreigner, they are charged more than the Turkish customers. According to Mr. Akca the reason for this is because foreigners have a lower price elasticity than Turkish customers which means they are willing and able to pay higher prices. The higher wages in foreign countries means that they are spending more money than Turkish customers and because of this reason they are ready to pay more for their rooms. Mr. Akca also says that they are charging different prices to different customers from different countries, meaning that Americans or people from the Middle East would pay more than Europeans who are more difficult to overcharge. 

This can be explained by differing price elasticities. He uses these words to explain this situation: “We all know that Americans earn more than everyone else including Europeans and this means they can pay more than everyone else.” According to what Mr. Akca says the board of management determines some prices for the foreigners by considering the national income of these consumers.  They give a decision-making-authority to the receptionists so that they can increase the prices about 10 to 20 Turkish liras.

The last type of customer is the regular customer such as pharmaceutical representatives. Mr. Akca says that for the regular customers they are generally charging the exact same price for the rooms and they do not practise the price discrimination for them.

According to the overall results of this investigation and the answers taken from the interview, it can be seen that hotels have different methods to maximise their profits. In order to use the advantages of price discrimination, they are separating their consumers and practising the price discrimination. In other words, they charge consumers the highest price that they are willing and able to pay so that they get the maximum profit that they can get.

Improvements

The investigation has shown that ski resorts in the Palandöken Mountain practise price discrimination to get the maximum profit. Data taken from the consumers in the resorts have proven that price discrimination occurs. However for this investigation, only 10 data for each type of consumers are used which is the weakness of this investigation. Small sample may cause the danger of one or two rogue results and falsely skewing the figures. If there could be more than 10 data, there might be more accurate results that show whether price discrimination occurs or not; but the investigation has supported the limited data by the interview made by the hotel manager so that the manager has also mentioned the price discrimination. All the data used in this investigation are taken from only 1 of the ski resorts in Palandöken so that all the price are similar; however if there could be the data of the other hotels, the price discrimination within hotels can also be observed.

Since the investigation is limited to 4000 words, it might be normal to have 10 data for each, however the investigation is opened to the improvements in order to see the price discrimination logic and the way that producers/hotels use to maximise their profits.

Appendix - Sample Questionnaire

This is the script of the questions that I have asked to the consumers of the hotels in the Palandöken Ski Centre to learn about the way hotels use to practise price discrimination:

Bilkent Erzurum Laboratory School

Economics Extended Essay Questionnaire

1: Where are you from?

2: How much do you pay for the hotel per night? (Including the ski lifts and ski equipments)

3: Do you think the hotel practise price discrimination?

This is the interview that I have made with the hotel manager to learn about the way hotels use to practise price discrimination. This is translated from the original and oral conversation.

Me: Hello Mr. Akca! I am here to learn about price discrimination that is practised by the hotels. Firstly, let me ask you whether you practise price discrimination or not? If yes, can you tell me about the way you follow for practising the price discrimination?

Mr. Akca: Of course we do. Price discrimination is something that is legal in the economy. As a hotel that has a wide range of tourist attraction from all around the world, we do practise price discrimination to make as much profit as we can. The most important thing about the price discrimination is that you should be able to practise price discrimination. We, as the Board of Directors of the hotel, have a meeting at the beginning of every week to talk about the profits and the prices. In these meetings, we are trying to find appropriate prices for the hotels in order to maximise our profits. During these meetings, we consider the price discrimination and we try to set the prices according to the price discrimination concepts. Let me explain these concepts from the booking ways of our hotels. We have 4 types of booking in our hotel: Online booking, booking by telephone, booking in the reception desk, regular bookings. Let me start with the online booking: In the meetings, we set a certain number of rooms that are reserved for the online booking. While people try to book from the websites like trivago.com etc., the online receptionist set different prices according to the number of rooms left for the online booking. As the number of rooms reserved for the online booking falls, the prices go a little bit up. If the consumers are booking on the telephone, the receptionists have the price-setting ability. They firstly ask where the consumers are calling from and then they set a price for these consumers according to their cities’ or countries’ average wealth level. When it comes to face to face booking where it take place in the reception desk, it becomes easier for us to take the prices up. When people come here for booking, we consider that they have only a few alternatives that is why they have to pay whatever the price we charge them is. As hotel administration we charge higher prices than normal but as always the price is negotiable. If they bargain with us, we may decrease the prices about 10-20 Turkish lira less. The regular consumers like pharmaceutical representatives we always have the same prices so that we do not practise price discrimination for these consumers. In general, I can say that tourists pay more than any other consumers and this is very normal. We all know that Americans earn more than everyone else including Europeans and this means they can pay more than everyone else. We set the price by looking at the wages so that it’s normal for these people to pay more. By considering that you know about the price elasticities, I can say that it is all about the price elasticity of these consumers. That’s all I can say about the hotels, do you have any other question?

Me: No, thank you Mr. Akca.

Bibliography

Blink, J., & Dorton , I. (2011). IB Economics. Oxford: Oxford University Press.

Glass, M. (n.d.). Houston Chronicle . Retrieved from Chron : http://smallbusiness.chron.com/3-types-price-discrimination-25634.html

Phlips , L. (1999). The Economics of Price Discrimination. New York: Cambridge University Press.

Wikipedia . (2011). Retrieved from Wikipedia, the free encyclopedia : https ://en.wikipedia.org/ wiki /2011_Winter_ Universiade

Grading practise

Now grade the extended essay according to the following essay, using the grading criteria accessed at MyIB

Remember that in order to grade accurately you will need to read each of the bands and starting with band 0, move up until you find the marking band which most accurately fits the essay.  If two bands appear to accurately assess the essay then teachers must use their professional judgement to decide which most accurately fits the criteria:

On the following page I have included both my notes as well as the score this essay was awarded from the IB.  To access this click on: Annotated extended essay sample 2 (grading criteria)

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• Published: 17 April 2024

The economic commitment of climate change

• Maximilian Kotz   ORCID: orcid.org/0000-0003-2564-5043 1 , 2 ,
• Anders Levermann   ORCID: orcid.org/0000-0003-4432-4704 1 , 2 &
• Leonie Wenz   ORCID: orcid.org/0000-0002-8500-1568 1 , 3  

Nature volume  628 ,  pages 551–557 ( 2024 ) Cite this article

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• Environmental economics
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• Projection and prediction

Global projections of macroeconomic climate-change damages typically consider impacts from average annual and national temperatures over long time horizons 1 , 2 , 3 , 4 , 5 , 6 . Here we use recent empirical findings from more than 1,600 regions worldwide over the past 40 years to project sub-national damages from temperature and precipitation, including daily variability and extremes 7 , 8 . Using an empirical approach that provides a robust lower bound on the persistence of impacts on economic growth, we find that the world economy is committed to an income reduction of 19% within the next 26 years independent of future emission choices (relative to a baseline without climate impacts, likely range of 11–29% accounting for physical climate and empirical uncertainty). These damages already outweigh the mitigation costs required to limit global warming to 2 °C by sixfold over this near-term time frame and thereafter diverge strongly dependent on emission choices. Committed damages arise predominantly through changes in average temperature, but accounting for further climatic components raises estimates by approximately 50% and leads to stronger regional heterogeneity. Committed losses are projected for all regions except those at very high latitudes, at which reductions in temperature variability bring benefits. The largest losses are committed at lower latitudes in regions with lower cumulative historical emissions and lower present-day income.

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Projections of the macroeconomic damage caused by future climate change are crucial to informing public and policy debates about adaptation, mitigation and climate justice. On the one hand, adaptation against climate impacts must be justified and planned on the basis of an understanding of their future magnitude and spatial distribution 9 . This is also of importance in the context of climate justice 10 , as well as to key societal actors, including governments, central banks and private businesses, which increasingly require the inclusion of climate risks in their macroeconomic forecasts to aid adaptive decision-making 11 , 12 . On the other hand, climate mitigation policy such as the Paris Climate Agreement is often evaluated by balancing the costs of its implementation against the benefits of avoiding projected physical damages. This evaluation occurs both formally through cost–benefit analyses 1 , 4 , 5 , 6 , as well as informally through public perception of mitigation and damage costs 13 .

Projections of future damages meet challenges when informing these debates, in particular the human biases relating to uncertainty and remoteness that are raised by long-term perspectives 14 . Here we aim to overcome such challenges by assessing the extent of economic damages from climate change to which the world is already committed by historical emissions and socio-economic inertia (the range of future emission scenarios that are considered socio-economically plausible 15 ). Such a focus on the near term limits the large uncertainties about diverging future emission trajectories, the resulting long-term climate response and the validity of applying historically observed climate–economic relations over long timescales during which socio-technical conditions may change considerably. As such, this focus aims to simplify the communication and maximize the credibility of projected economic damages from future climate change.

In projecting the future economic damages from climate change, we make use of recent advances in climate econometrics that provide evidence for impacts on sub-national economic growth from numerous components of the distribution of daily temperature and precipitation 3 , 7 , 8 . Using fixed-effects panel regression models to control for potential confounders, these studies exploit within-region variation in local temperature and precipitation in a panel of more than 1,600 regions worldwide, comprising climate and income data over the past 40 years, to identify the plausibly causal effects of changes in several climate variables on economic productivity 16 , 17 . Specifically, macroeconomic impacts have been identified from changing daily temperature variability, total annual precipitation, the annual number of wet days and extreme daily rainfall that occur in addition to those already identified from changing average temperature 2 , 3 , 18 . Moreover, regional heterogeneity in these effects based on the prevailing local climatic conditions has been found using interactions terms. The selection of these climate variables follows micro-level evidence for mechanisms related to the impacts of average temperatures on labour and agricultural productivity 2 , of temperature variability on agricultural productivity and health 7 , as well as of precipitation on agricultural productivity, labour outcomes and flood damages 8 (see Extended Data Table 1 for an overview, including more detailed references). References  7 , 8 contain a more detailed motivation for the use of these particular climate variables and provide extensive empirical tests about the robustness and nature of their effects on economic output, which are summarized in Methods . By accounting for these extra climatic variables at the sub-national level, we aim for a more comprehensive description of climate impacts with greater detail across both time and space.

Constraining the persistence of impacts

A key determinant and source of discrepancy in estimates of the magnitude of future climate damages is the extent to which the impact of a climate variable on economic growth rates persists. The two extreme cases in which these impacts persist indefinitely or only instantaneously are commonly referred to as growth or level effects 19 , 20 (see Methods section ‘Empirical model specification: fixed-effects distributed lag models’ for mathematical definitions). Recent work shows that future damages from climate change depend strongly on whether growth or level effects are assumed 20 . Following refs.  2 , 18 , we provide constraints on this persistence by using distributed lag models to test the significance of delayed effects separately for each climate variable. Notably, and in contrast to refs.  2 , 18 , we use climate variables in their first-differenced form following ref.  3 , implying a dependence of the growth rate on a change in climate variables. This choice means that a baseline specification without any lags constitutes a model prior of purely level effects, in which a permanent change in the climate has only an instantaneous effect on the growth rate 3 , 19 , 21 . By including lags, one can then test whether any effects may persist further. This is in contrast to the specification used by refs.  2 , 18 , in which climate variables are used without taking the first difference, implying a dependence of the growth rate on the level of climate variables. In this alternative case, the baseline specification without any lags constitutes a model prior of pure growth effects, in which a change in climate has an infinitely persistent effect on the growth rate. Consequently, including further lags in this alternative case tests whether the initial growth impact is recovered 18 , 19 , 21 . Both of these specifications suffer from the limiting possibility that, if too few lags are included, one might falsely accept the model prior. The limitations of including a very large number of lags, including loss of data and increasing statistical uncertainty with an increasing number of parameters, mean that such a possibility is likely. By choosing a specification in which the model prior is one of level effects, our approach is therefore conservative by design, avoiding assumptions of infinite persistence of climate impacts on growth and instead providing a lower bound on this persistence based on what is observable empirically (see Methods section ‘Empirical model specification: fixed-effects distributed lag models’ for further exposition of this framework). The conservative nature of such a choice is probably the reason that ref.  19 finds much greater consistency between the impacts projected by models that use the first difference of climate variables, as opposed to their levels.

We begin our empirical analysis of the persistence of climate impacts on growth using ten lags of the first-differenced climate variables in fixed-effects distributed lag models. We detect substantial effects on economic growth at time lags of up to approximately 8–10 years for the temperature terms and up to approximately 4 years for the precipitation terms (Extended Data Fig. 1 and Extended Data Table 2 ). Furthermore, evaluation by means of information criteria indicates that the inclusion of all five climate variables and the use of these numbers of lags provide a preferable trade-off between best-fitting the data and including further terms that could cause overfitting, in comparison with model specifications excluding climate variables or including more or fewer lags (Extended Data Fig. 3 , Supplementary Methods Section  1 and Supplementary Table 1 ). We therefore remove statistically insignificant terms at later lags (Supplementary Figs. 1 – 3 and Supplementary Tables 2 – 4 ). Further tests using Monte Carlo simulations demonstrate that the empirical models are robust to autocorrelation in the lagged climate variables (Supplementary Methods Section  2 and Supplementary Figs. 4 and 5 ), that information criteria provide an effective indicator for lag selection (Supplementary Methods Section  2 and Supplementary Fig. 6 ), that the results are robust to concerns of imperfect multicollinearity between climate variables and that including several climate variables is actually necessary to isolate their separate effects (Supplementary Methods Section  3 and Supplementary Fig. 7 ). We provide a further robustness check using a restricted distributed lag model to limit oscillations in the lagged parameter estimates that may result from autocorrelation, finding that it provides similar estimates of cumulative marginal effects to the unrestricted model (Supplementary Methods Section 4 and Supplementary Figs. 8 and 9 ). Finally, to explicitly account for any outstanding uncertainty arising from the precise choice of the number of lags, we include empirical models with marginally different numbers of lags in the error-sampling procedure of our projection of future damages. On the basis of the lag-selection procedure (the significance of lagged terms in Extended Data Fig. 1 and Extended Data Table 2 , as well as information criteria in Extended Data Fig. 3 ), we sample from models with eight to ten lags for temperature and four for precipitation (models shown in Supplementary Figs. 1 – 3 and Supplementary Tables 2 – 4 ). In summary, this empirical approach to constrain the persistence of climate impacts on economic growth rates is conservative by design in avoiding assumptions of infinite persistence, but nevertheless provides a lower bound on the extent of impact persistence that is robust to the numerous tests outlined above.

Committed damages until mid-century

We combine these empirical economic response functions (Supplementary Figs. 1 – 3 and Supplementary Tables 2 – 4 ) with an ensemble of 21 climate models (see Supplementary Table 5 ) from the Coupled Model Intercomparison Project Phase 6 (CMIP-6) 22 to project the macroeconomic damages from these components of physical climate change (see Methods for further details). Bias-adjusted climate models that provide a highly accurate reproduction of observed climatological patterns with limited uncertainty (Supplementary Table 6 ) are used to avoid introducing biases in the projections. Following a well-developed literature 2 , 3 , 19 , these projections do not aim to provide a prediction of future economic growth. Instead, they are a projection of the exogenous impact of future climate conditions on the economy relative to the baselines specified by socio-economic projections, based on the plausibly causal relationships inferred by the empirical models and assuming ceteris paribus. Other exogenous factors relevant for the prediction of economic output are purposefully assumed constant.

A Monte Carlo procedure that samples from climate model projections, empirical models with different numbers of lags and model parameter estimates (obtained by 1,000 block-bootstrap resamples of each of the regressions in Supplementary Figs. 1 – 3 and Supplementary Tables 2 – 4 ) is used to estimate the combined uncertainty from these sources. Given these uncertainty distributions, we find that projected global damages are statistically indistinguishable across the two most extreme emission scenarios until 2049 (at the 5% significance level; Fig. 1 ). As such, the climate damages occurring before this time constitute those to which the world is already committed owing to the combination of past emissions and the range of future emission scenarios that are considered socio-economically plausible 15 . These committed damages comprise a permanent income reduction of 19% on average globally (population-weighted average) in comparison with a baseline without climate-change impacts (with a likely range of 11–29%, following the likelihood classification adopted by the Intergovernmental Panel on Climate Change (IPCC); see caption of Fig. 1 ). Even though levels of income per capita generally still increase relative to those of today, this constitutes a permanent income reduction for most regions, including North America and Europe (each with median income reductions of approximately 11%) and with South Asia and Africa being the most strongly affected (each with median income reductions of approximately 22%; Fig. 1 ). Under a middle-of-the road scenario of future income development (SSP2, in which SSP stands for Shared Socio-economic Pathway), this corresponds to global annual damages in 2049 of 38 trillion in 2005 international dollars (likely range of 19–59 trillion 2005 international dollars). Compared with empirical specifications that assume pure growth or pure level effects, our preferred specification that provides a robust lower bound on the extent of climate impact persistence produces damages between these two extreme assumptions (Extended Data Fig. 3 ).

Estimates of the projected reduction in income per capita from changes in all climate variables based on empirical models of climate impacts on economic output with a robust lower bound on their persistence (Extended Data Fig. 1 ) under a low-emission scenario compatible with the 2 °C warming target and a high-emission scenario (SSP2-RCP2.6 and SSP5-RCP8.5, respectively) are shown in purple and orange, respectively. Shading represents the 34% and 10% confidence intervals reflecting the likely and very likely ranges, respectively (following the likelihood classification adopted by the IPCC), having estimated uncertainty from a Monte Carlo procedure, which samples the uncertainty from the choice of physical climate models, empirical models with different numbers of lags and bootstrapped estimates of the regression parameters shown in Supplementary Figs. 1 – 3 . Vertical dashed lines show the time at which the climate damages of the two emission scenarios diverge at the 5% and 1% significance levels based on the distribution of differences between emission scenarios arising from the uncertainty sampling discussed above. Note that uncertainty in the difference of the two scenarios is smaller than the combined uncertainty of the two respective scenarios because samples of the uncertainty (climate model and empirical model choice, as well as model parameter bootstrap) are consistent across the two emission scenarios, hence the divergence of damages occurs while the uncertainty bounds of the two separate damage scenarios still overlap. Estimates of global mitigation costs from the three IAMs that provide results for the SSP2 baseline and SSP2-RCP2.6 scenario are shown in light green in the top panel, with the median of these estimates shown in bold.

Damages already outweigh mitigation costs

We compare the damages to which the world is committed over the next 25 years to estimates of the mitigation costs required to achieve the Paris Climate Agreement. Taking estimates of mitigation costs from the three integrated assessment models (IAMs) in the IPCC AR6 database 23 that provide results under comparable scenarios (SSP2 baseline and SSP2-RCP2.6, in which RCP stands for Representative Concentration Pathway), we find that the median committed climate damages are larger than the median mitigation costs in 2050 (six trillion in 2005 international dollars) by a factor of approximately six (note that estimates of mitigation costs are only provided every 10 years by the IAMs and so a comparison in 2049 is not possible). This comparison simply aims to compare the magnitude of future damages against mitigation costs, rather than to conduct a formal cost–benefit analysis of transitioning from one emission path to another. Formal cost–benefit analyses typically find that the net benefits of mitigation only emerge after 2050 (ref.  5 ), which may lead some to conclude that physical damages from climate change are simply not large enough to outweigh mitigation costs until the second half of the century. Our simple comparison of their magnitudes makes clear that damages are actually already considerably larger than mitigation costs and the delayed emergence of net mitigation benefits results primarily from the fact that damages across different emission paths are indistinguishable until mid-century (Fig. 1 ).

Although these near-term damages constitute those to which the world is already committed, we note that damage estimates diverge strongly across emission scenarios after 2049, conveying the clear benefits of mitigation from a purely economic point of view that have been emphasized in previous studies 4 , 24 . As well as the uncertainties assessed in Fig. 1 , these conclusions are robust to structural choices, such as the timescale with which changes in the moderating variables of the empirical models are estimated (Supplementary Figs. 10 and 11 ), as well as the order in which one accounts for the intertemporal and international components of currency comparison (Supplementary Fig. 12 ; see Methods for further details).

Damages from variability and extremes

Committed damages primarily arise through changes in average temperature (Fig. 2 ). This reflects the fact that projected changes in average temperature are larger than those in other climate variables when expressed as a function of their historical interannual variability (Extended Data Fig. 4 ). Because the historical variability is that on which the empirical models are estimated, larger projected changes in comparison with this variability probably lead to larger future impacts in a purely statistical sense. From a mechanistic perspective, one may plausibly interpret this result as implying that future changes in average temperature are the most unprecedented from the perspective of the historical fluctuations to which the economy is accustomed and therefore will cause the most damage. This insight may prove useful in terms of guiding adaptation measures to the sources of greatest damage.

Estimates of the median projected reduction in sub-national income per capita across emission scenarios (SSP2-RCP2.6 and SSP2-RCP8.5) as well as climate model, empirical model and model parameter uncertainty in the year in which climate damages diverge at the 5% level (2049, as identified in Fig. 1 ). a , Impacts arising from all climate variables. b – f , Impacts arising separately from changes in annual mean temperature ( b ), daily temperature variability ( c ), total annual precipitation ( d ), the annual number of wet days (>1 mm) ( e ) and extreme daily rainfall ( f ) (see Methods for further definitions). Data on national administrative boundaries are obtained from the GADM database version 3.6 and are freely available for academic use ( https://gadm.org/ ).

Nevertheless, future damages based on empirical models that consider changes in annual average temperature only and exclude the other climate variables constitute income reductions of only 13% in 2049 (Extended Data Fig. 5a , likely range 5–21%). This suggests that accounting for the other components of the distribution of temperature and precipitation raises net damages by nearly 50%. This increase arises through the further damages that these climatic components cause, but also because their inclusion reveals a stronger negative economic response to average temperatures (Extended Data Fig. 5b ). The latter finding is consistent with our Monte Carlo simulations, which suggest that the magnitude of the effect of average temperature on economic growth is underestimated unless accounting for the impacts of other correlated climate variables (Supplementary Fig. 7 ).

In terms of the relative contributions of the different climatic components to overall damages, we find that accounting for daily temperature variability causes the largest increase in overall damages relative to empirical frameworks that only consider changes in annual average temperature (4.9 percentage points, likely range 2.4–8.7 percentage points, equivalent to approximately 10 trillion international dollars). Accounting for precipitation causes smaller increases in overall damages, which are—nevertheless—equivalent to approximately 1.2 trillion international dollars: 0.01 percentage points (−0.37–0.33 percentage points), 0.34 percentage points (0.07–0.90 percentage points) and 0.36 percentage points (0.13–0.65 percentage points) from total annual precipitation, the number of wet days and extreme daily precipitation, respectively. Moreover, climate models seem to underestimate future changes in temperature variability 25 and extreme precipitation 26 , 27 in response to anthropogenic forcing as compared with that observed historically, suggesting that the true impacts from these variables may be larger.

The distribution of committed damages

The spatial distribution of committed damages (Fig. 2a ) reflects a complex interplay between the patterns of future change in several climatic components and those of historical economic vulnerability to changes in those variables. Damages resulting from increasing annual mean temperature (Fig. 2b ) are negative almost everywhere globally, and larger at lower latitudes in regions in which temperatures are already higher and economic vulnerability to temperature increases is greatest (see the response heterogeneity to mean temperature embodied in Extended Data Fig. 1a ). This occurs despite the amplified warming projected at higher latitudes 28 , suggesting that regional heterogeneity in economic vulnerability to temperature changes outweighs heterogeneity in the magnitude of future warming (Supplementary Fig. 13a ). Economic damages owing to daily temperature variability (Fig. 2c ) exhibit a strong latitudinal polarisation, primarily reflecting the physical response of daily variability to greenhouse forcing in which increases in variability across lower latitudes (and Europe) contrast decreases at high latitudes 25 (Supplementary Fig. 13b ). These two temperature terms are the dominant determinants of the pattern of overall damages (Fig. 2a ), which exhibits a strong polarity with damages across most of the globe except at the highest northern latitudes. Future changes in total annual precipitation mainly bring economic benefits except in regions of drying, such as the Mediterranean and central South America (Fig. 2d and Supplementary Fig. 13c ), but these benefits are opposed by changes in the number of wet days, which produce damages with a similar pattern of opposite sign (Fig. 2e and Supplementary Fig. 13d ). By contrast, changes in extreme daily rainfall produce damages in all regions, reflecting the intensification of daily rainfall extremes over global land areas 29 , 30 (Fig. 2f and Supplementary Fig. 13e ).

The spatial distribution of committed damages implies considerable injustice along two dimensions: culpability for the historical emissions that have caused climate change and pre-existing levels of socio-economic welfare. Spearman’s rank correlations indicate that committed damages are significantly larger in countries with smaller historical cumulative emissions, as well as in regions with lower current income per capita (Fig. 3 ). This implies that those countries that will suffer the most from the damages already committed are those that are least responsible for climate change and which also have the least resources to adapt to it.

Estimates of the median projected change in national income per capita across emission scenarios (RCP2.6 and RCP8.5) as well as climate model, empirical model and model parameter uncertainty in the year in which climate damages diverge at the 5% level (2049, as identified in Fig. 1 ) are plotted against cumulative national emissions per capita in 2020 (from the Global Carbon Project) and coloured by national income per capita in 2020 (from the World Bank) in a and vice versa in b . In each panel, the size of each scatter point is weighted by the national population in 2020 (from the World Bank). Inset numbers indicate the Spearman’s rank correlation ρ and P -values for a hypothesis test whose null hypothesis is of no correlation, as well as the Spearman’s rank correlation weighted by national population.

To further quantify this heterogeneity, we assess the difference in committed damages between the upper and lower quartiles of regions when ranked by present income levels and historical cumulative emissions (using a population weighting to both define the quartiles and estimate the group averages). On average, the quartile of countries with lower income are committed to an income loss that is 8.9 percentage points (or 61%) greater than the upper quartile (Extended Data Fig. 6 ), with a likely range of 3.8–14.7 percentage points across the uncertainty sampling of our damage projections (following the likelihood classification adopted by the IPCC). Similarly, the quartile of countries with lower historical cumulative emissions are committed to an income loss that is 6.9 percentage points (or 40%) greater than the upper quartile, with a likely range of 0.27–12 percentage points. These patterns reemphasize the prevalence of injustice in climate impacts 31 , 32 , 33 in the context of the damages to which the world is already committed by historical emissions and socio-economic inertia.

Contextualizing the magnitude of damages

The magnitude of projected economic damages exceeds previous literature estimates 2 , 3 , arising from several developments made on previous approaches. Our estimates are larger than those of ref.  2 (see first row of Extended Data Table 3 ), primarily because of the facts that sub-national estimates typically show a steeper temperature response (see also refs.  3 , 34 ) and that accounting for other climatic components raises damage estimates (Extended Data Fig. 5 ). However, we note that our empirical approach using first-differenced climate variables is conservative compared with that of ref.  2 in regard to the persistence of climate impacts on growth (see introduction and Methods section ‘Empirical model specification: fixed-effects distributed lag models’), an important determinant of the magnitude of long-term damages 19 , 21 . Using a similar empirical specification to ref.  2 , which assumes infinite persistence while maintaining the rest of our approach (sub-national data and further climate variables), produces considerably larger damages (purple curve of Extended Data Fig. 3 ). Compared with studies that do take the first difference of climate variables 3 , 35 , our estimates are also larger (see second and third rows of Extended Data Table 3 ). The inclusion of further climate variables (Extended Data Fig. 5 ) and a sufficient number of lags to more adequately capture the extent of impact persistence (Extended Data Figs. 1 and 2 ) are the main sources of this difference, as is the use of specifications that capture nonlinearities in the temperature response when compared with ref.  35 . In summary, our estimates develop on previous studies by incorporating the latest data and empirical insights 7 , 8 , as well as in providing a robust empirical lower bound on the persistence of impacts on economic growth, which constitutes a middle ground between the extremes of the growth-versus-levels debate 19 , 21 (Extended Data Fig. 3 ).

Compared with the fraction of variance explained by the empirical models historically (<5%), the projection of reductions in income of 19% may seem large. This arises owing to the fact that projected changes in climatic conditions are much larger than those that were experienced historically, particularly for changes in average temperature (Extended Data Fig. 4 ). As such, any assessment of future climate-change impacts necessarily requires an extrapolation outside the range of the historical data on which the empirical impact models were evaluated. Nevertheless, these models constitute the most state-of-the-art methods for inference of plausibly causal climate impacts based on observed data. Moreover, we take explicit steps to limit out-of-sample extrapolation by capping the moderating variables of the interaction terms at the 95th percentile of the historical distribution (see Methods ). This avoids extrapolating the marginal effects outside what was observed historically. Given the nonlinear response of economic output to annual mean temperature (Extended Data Fig. 1 and Extended Data Table 2 ), this is a conservative choice that limits the magnitude of damages that we project. Furthermore, back-of-the-envelope calculations indicate that the projected damages are consistent with the magnitude and patterns of historical economic development (see Supplementary Discussion Section  5 ).

Missing impacts and spatial spillovers

Despite assessing several climatic components from which economic impacts have recently been identified 3 , 7 , 8 , this assessment of aggregate climate damages should not be considered comprehensive. Important channels such as impacts from heatwaves 31 , sea-level rise 36 , tropical cyclones 37 and tipping points 38 , 39 , as well as non-market damages such as those to ecosystems 40 and human health 41 , are not considered in these estimates. Sea-level rise is unlikely to be feasibly incorporated into empirical assessments such as this because historical sea-level variability is mostly small. Non-market damages are inherently intractable within our estimates of impacts on aggregate monetary output and estimates of these impacts could arguably be considered as extra to those identified here. Recent empirical work suggests that accounting for these channels would probably raise estimates of these committed damages, with larger damages continuing to arise in the global south 31 , 36 , 37 , 38 , 39 , 40 , 41 , 42 .

Moreover, our main empirical analysis does not explicitly evaluate the potential for impacts in local regions to produce effects that ‘spill over’ into other regions. Such effects may further mitigate or amplify the impacts we estimate, for example, if companies relocate production from one affected region to another or if impacts propagate along supply chains. The current literature indicates that trade plays a substantial role in propagating spillover effects 43 , 44 , making their assessment at the sub-national level challenging without available data on sub-national trade dependencies. Studies accounting for only spatially adjacent neighbours indicate that negative impacts in one region induce further negative impacts in neighbouring regions 45 , 46 , 47 , 48 , suggesting that our projected damages are probably conservative by excluding these effects. In Supplementary Fig. 14 , we assess spillovers from neighbouring regions using a spatial-lag model. For simplicity, this analysis excludes temporal lags, focusing only on contemporaneous effects. The results show that accounting for spatial spillovers can amplify the overall magnitude, and also the heterogeneity, of impacts. Consistent with previous literature, this indicates that the overall magnitude (Fig. 1 ) and heterogeneity (Fig. 3 ) of damages that we project in our main specification may be conservative without explicitly accounting for spillovers. We note that further analysis that addresses both spatially and trade-connected spillovers, while also accounting for delayed impacts using temporal lags, would be necessary to adequately address this question fully. These approaches offer fruitful avenues for further research but are beyond the scope of this manuscript, which primarily aims to explore the impacts of different climate conditions and their persistence.

Policy implications

We find that the economic damages resulting from climate change until 2049 are those to which the world economy is already committed and that these greatly outweigh the costs required to mitigate emissions in line with the 2 °C target of the Paris Climate Agreement (Fig. 1 ). This assessment is complementary to formal analyses of the net costs and benefits associated with moving from one emission path to another, which typically find that net benefits of mitigation only emerge in the second half of the century 5 . Our simple comparison of the magnitude of damages and mitigation costs makes clear that this is primarily because damages are indistinguishable across emissions scenarios—that is, committed—until mid-century (Fig. 1 ) and that they are actually already much larger than mitigation costs. For simplicity, and owing to the availability of data, we compare damages to mitigation costs at the global level. Regional estimates of mitigation costs may shed further light on the national incentives for mitigation to which our results already hint, of relevance for international climate policy. Although these damages are committed from a mitigation perspective, adaptation may provide an opportunity to reduce them. Moreover, the strong divergence of damages after mid-century reemphasizes the clear benefits of mitigation from a purely economic perspective, as highlighted in previous studies 1 , 4 , 6 , 24 .

Historical climate data

Historical daily 2-m temperature and precipitation totals (in mm) are obtained for the period 1979–2019 from the W5E5 database. The W5E5 dataset comes from ERA-5, a state-of-the-art reanalysis of historical observations, but has been bias-adjusted by applying version 2.0 of the WATCH Forcing Data to ERA-5 reanalysis data and precipitation data from version 2.3 of the Global Precipitation Climatology Project to better reflect ground-based measurements 49 , 50 , 51 . We obtain these data on a 0.5° × 0.5° grid from the Inter-Sectoral Impact Model Intercomparison Project (ISIMIP) database. Notably, these historical data have been used to bias-adjust future climate projections from CMIP-6 (see the following section), ensuring consistency between the distribution of historical daily weather on which our empirical models were estimated and the climate projections used to estimate future damages. These data are publicly available from the ISIMIP database. See refs.  7 , 8 for robustness tests of the empirical models to the choice of climate data reanalysis products.

Future climate data

Daily 2-m temperature and precipitation totals (in mm) are taken from 21 climate models participating in CMIP-6 under a high (RCP8.5) and a low (RCP2.6) greenhouse gas emission scenario from 2015 to 2100. The data have been bias-adjusted and statistically downscaled to a common half-degree grid to reflect the historical distribution of daily temperature and precipitation of the W5E5 dataset using the trend-preserving method developed by the ISIMIP 50 , 52 . As such, the climate model data reproduce observed climatological patterns exceptionally well (Supplementary Table 5 ). Gridded data are publicly available from the ISIMIP database.

Historical economic data

Historical economic data come from the DOSE database of sub-national economic output 53 . We use a recent revision to the DOSE dataset that provides data across 83 countries, 1,660 sub-national regions with varying temporal coverage from 1960 to 2019. Sub-national units constitute the first administrative division below national, for example, states for the USA and provinces for China. Data come from measures of gross regional product per capita (GRPpc) or income per capita in local currencies, reflecting the values reported in national statistical agencies, yearbooks and, in some cases, academic literature. We follow previous literature 3 , 7 , 8 , 54 and assess real sub-national output per capita by first converting values from local currencies to US dollars to account for diverging national inflationary tendencies and then account for US inflation using a US deflator. Alternatively, one might first account for national inflation and then convert between currencies. Supplementary Fig. 12 demonstrates that our conclusions are consistent when accounting for price changes in the reversed order, although the magnitude of estimated damages varies. See the documentation of the DOSE dataset for further discussion of these choices. Conversions between currencies are conducted using exchange rates from the FRED database of the Federal Reserve Bank of St. Louis 55 and the national deflators from the World Bank 56 .

Future socio-economic data

Baseline gridded gross domestic product (GDP) and population data for the period 2015–2100 are taken from the middle-of-the-road scenario SSP2 (ref.  15 ). Population data have been downscaled to a half-degree grid by the ISIMIP following the methodologies of refs.  57 , 58 , which we then aggregate to the sub-national level of our economic data using the spatial aggregation procedure described below. Because current methodologies for downscaling the GDP of the SSPs use downscaled population to do so, per-capita estimates of GDP with a realistic distribution at the sub-national level are not readily available for the SSPs. We therefore use national-level GDP per capita (GDPpc) projections for all sub-national regions of a given country, assuming homogeneity within countries in terms of baseline GDPpc. Here we use projections that have been updated to account for the impact of the COVID-19 pandemic on the trajectory of future income, while remaining consistent with the long-term development of the SSPs 59 . The choice of baseline SSP alters the magnitude of projected climate damages in monetary terms, but when assessed in terms of percentage change from the baseline, the choice of socio-economic scenario is inconsequential. Gridded SSP population data and national-level GDPpc data are publicly available from the ISIMIP database. Sub-national estimates as used in this study are available in the code and data replication files.

Climate variables

Following recent literature 3 , 7 , 8 , we calculate an array of climate variables for which substantial impacts on macroeconomic output have been identified empirically, supported by further evidence at the micro level for plausible underlying mechanisms. See refs.  7 , 8 for an extensive motivation for the use of these particular climate variables and for detailed empirical tests on the nature and robustness of their effects on economic output. To summarize, these studies have found evidence for independent impacts on economic growth rates from annual average temperature, daily temperature variability, total annual precipitation, the annual number of wet days and extreme daily rainfall. Assessments of daily temperature variability were motivated by evidence of impacts on agricultural output and human health, as well as macroeconomic literature on the impacts of volatility on growth when manifest in different dimensions, such as government spending, exchange rates and even output itself 7 . Assessments of precipitation impacts were motivated by evidence of impacts on agricultural productivity, metropolitan labour outcomes and conflict, as well as damages caused by flash flooding 8 . See Extended Data Table 1 for detailed references to empirical studies of these physical mechanisms. Marked impacts of daily temperature variability, total annual precipitation, the number of wet days and extreme daily rainfall on macroeconomic output were identified robustly across different climate datasets, spatial aggregation schemes, specifications of regional time trends and error-clustering approaches. They were also found to be robust to the consideration of temperature extremes 7 , 8 . Furthermore, these climate variables were identified as having independent effects on economic output 7 , 8 , which we further explain here using Monte Carlo simulations to demonstrate the robustness of the results to concerns of imperfect multicollinearity between climate variables (Supplementary Methods Section  2 ), as well as by using information criteria (Supplementary Table 1 ) to demonstrate that including several lagged climate variables provides a preferable trade-off between optimally describing the data and limiting the possibility of overfitting.

We calculate these variables from the distribution of daily, d , temperature, T x , d , and precipitation, P x , d , at the grid-cell, x , level for both the historical and future climate data. As well as annual mean temperature, \({\bar{T}}_{x,y}\) , and annual total precipitation, P x , y , we calculate annual, y , measures of daily temperature variability, \({\widetilde{T}}_{x,y}\) :

the number of wet days, Pwd x , y :

and extreme daily rainfall:

in which T x , d , m , y is the grid-cell-specific daily temperature in month m and year y , \({\bar{T}}_{x,m,{y}}\) is the year and grid-cell-specific monthly, m , mean temperature, D m and D y the number of days in a given month m or year y , respectively, H the Heaviside step function, 1 mm the threshold used to define wet days and P 99.9 x is the 99.9th percentile of historical (1979–2019) daily precipitation at the grid-cell level. Units of the climate measures are degrees Celsius for annual mean temperature and daily temperature variability, millimetres for total annual precipitation and extreme daily precipitation, and simply the number of days for the annual number of wet days.

We also calculated weighted standard deviations of monthly rainfall totals as also used in ref.  8 but do not include them in our projections as we find that, when accounting for delayed effects, their effect becomes statistically indistinct and is better captured by changes in total annual rainfall.

Spatial aggregation

We aggregate grid-cell-level historical and future climate measures, as well as grid-cell-level future GDPpc and population, to the level of the first administrative unit below national level of the GADM database, using an area-weighting algorithm that estimates the portion of each grid cell falling within an administrative boundary. We use this as our baseline specification following previous findings that the effect of area or population weighting at the sub-national level is negligible 7 , 8 .

Empirical model specification: fixed-effects distributed lag models

Following a wide range of climate econometric literature 16 , 60 , we use panel regression models with a selection of fixed effects and time trends to isolate plausibly exogenous variation with which to maximize confidence in a causal interpretation of the effects of climate on economic growth rates. The use of region fixed effects, μ r , accounts for unobserved time-invariant differences between regions, such as prevailing climatic norms and growth rates owing to historical and geopolitical factors. The use of yearly fixed effects, η y , accounts for regionally invariant annual shocks to the global climate or economy such as the El Niño–Southern Oscillation or global recessions. In our baseline specification, we also include region-specific linear time trends, k r y , to exclude the possibility of spurious correlations resulting from common slow-moving trends in climate and growth.

The persistence of climate impacts on economic growth rates is a key determinant of the long-term magnitude of damages. Methods for inferring the extent of persistence in impacts on growth rates have typically used lagged climate variables to evaluate the presence of delayed effects or catch-up dynamics 2 , 18 . For example, consider starting from a model in which a climate condition, C r , y , (for example, annual mean temperature) affects the growth rate, Δlgrp r , y (the first difference of the logarithm of gross regional product) of region r in year y :

which we refer to as a ‘pure growth effects’ model in the main text. Typically, further lags are included,

and the cumulative effect of all lagged terms is evaluated to assess the extent to which climate impacts on growth rates persist. Following ref.  18 , in the case that,

the implication is that impacts on the growth rate persist up to NL years after the initial shock (possibly to a weaker or a stronger extent), whereas if

then the initial impact on the growth rate is recovered after NL years and the effect is only one on the level of output. However, we note that such approaches are limited by the fact that, when including an insufficient number of lags to detect a recovery of the growth rates, one may find equation ( 6 ) to be satisfied and incorrectly assume that a change in climatic conditions affects the growth rate indefinitely. In practice, given a limited record of historical data, including too few lags to confidently conclude in an infinitely persistent impact on the growth rate is likely, particularly over the long timescales over which future climate damages are often projected 2 , 24 . To avoid this issue, we instead begin our analysis with a model for which the level of output, lgrp r , y , depends on the level of a climate variable, C r , y :

Given the non-stationarity of the level of output, we follow the literature 19 and estimate such an equation in first-differenced form as,

which we refer to as a model of ‘pure level effects’ in the main text. This model constitutes a baseline specification in which a permanent change in the climate variable produces an instantaneous impact on the growth rate and a permanent effect only on the level of output. By including lagged variables in this specification,

we are able to test whether the impacts on the growth rate persist any further than instantaneously by evaluating whether α L  > 0 are statistically significantly different from zero. Even though this framework is also limited by the possibility of including too few lags, the choice of a baseline model specification in which impacts on the growth rate do not persist means that, in the case of including too few lags, the framework reverts to the baseline specification of level effects. As such, this framework is conservative with respect to the persistence of impacts and the magnitude of future damages. It naturally avoids assumptions of infinite persistence and we are able to interpret any persistence that we identify with equation ( 9 ) as a lower bound on the extent of climate impact persistence on growth rates. See the main text for further discussion of this specification choice, in particular about its conservative nature compared with previous literature estimates, such as refs.  2 , 18 .

We allow the response to climatic changes to vary across regions, using interactions of the climate variables with historical average (1979–2019) climatic conditions reflecting heterogenous effects identified in previous work 7 , 8 . Following this previous work, the moderating variables of these interaction terms constitute the historical average of either the variable itself or of the seasonal temperature difference, \({\hat{T}}_{r}\) , or annual mean temperature, \({\bar{T}}_{r}\) , in the case of daily temperature variability 7 and extreme daily rainfall, respectively 8 .

The resulting regression equation with N and M lagged variables, respectively, reads:

in which Δlgrp r , y is the annual, regional GRPpc growth rate, measured as the first difference of the logarithm of real GRPpc, following previous work 2 , 3 , 7 , 8 , 18 , 19 . Fixed-effects regressions were run using the fixest package in R (ref.  61 ).

Estimates of the coefficients of interest α i , L are shown in Extended Data Fig. 1 for N  =  M  = 10 lags and for our preferred choice of the number of lags in Supplementary Figs. 1 – 3 . In Extended Data Fig. 1 , errors are shown clustered at the regional level, but for the construction of damage projections, we block-bootstrap the regressions by region 1,000 times to provide a range of parameter estimates with which to sample the projection uncertainty (following refs.  2 , 31 ).

Spatial-lag model

In Supplementary Fig. 14 , we present the results from a spatial-lag model that explores the potential for climate impacts to ‘spill over’ into spatially neighbouring regions. We measure the distance between centroids of each pair of sub-national regions and construct spatial lags that take the average of the first-differenced climate variables and their interaction terms over neighbouring regions that are at distances of 0–500, 500–1,000, 1,000–1,500 and 1,500–2000 km (spatial lags, ‘SL’, 1 to 4). For simplicity, we then assess a spatial-lag model without temporal lags to assess spatial spillovers of contemporaneous climate impacts. This model takes the form:

in which SL indicates the spatial lag of each climate variable and interaction term. In Supplementary Fig. 14 , we plot the cumulative marginal effect of each climate variable at different baseline climate conditions by summing the coefficients for each climate variable and interaction term, for example, for average temperature impacts as:

These cumulative marginal effects can be regarded as the overall spatially dependent impact to an individual region given a one-unit shock to a climate variable in that region and all neighbouring regions at a given value of the moderating variable of the interaction term.

Constructing projections of economic damage from future climate change

We construct projections of future climate damages by applying the coefficients estimated in equation ( 10 ) and shown in Supplementary Tables 2 – 4 (when including only lags with statistically significant effects in specifications that limit overfitting; see Supplementary Methods Section  1 ) to projections of future climate change from the CMIP-6 models. Year-on-year changes in each primary climate variable of interest are calculated to reflect the year-to-year variations used in the empirical models. 30-year moving averages of the moderating variables of the interaction terms are calculated to reflect the long-term average of climatic conditions that were used for the moderating variables in the empirical models. By using moving averages in the projections, we account for the changing vulnerability to climate shocks based on the evolving long-term conditions (Supplementary Figs. 10 and 11 show that the results are robust to the precise choice of the window of this moving average). Although these climate variables are not differenced, the fact that the bias-adjusted climate models reproduce observed climatological patterns across regions for these moderating variables very accurately (Supplementary Table 6 ) with limited spread across models (<3%) precludes the possibility that any considerable bias or uncertainty is introduced by this methodological choice. However, we impose caps on these moderating variables at the 95th percentile at which they were observed in the historical data to prevent extrapolation of the marginal effects outside the range in which the regressions were estimated. This is a conservative choice that limits the magnitude of our damage projections.

Time series of primary climate variables and moderating climate variables are then combined with estimates of the empirical model parameters to evaluate the regression coefficients in equation ( 10 ), producing a time series of annual GRPpc growth-rate reductions for a given emission scenario, climate model and set of empirical model parameters. The resulting time series of growth-rate impacts reflects those occurring owing to future climate change. By contrast, a future scenario with no climate change would be one in which climate variables do not change (other than with random year-to-year fluctuations) and hence the time-averaged evaluation of equation ( 10 ) would be zero. Our approach therefore implicitly compares the future climate-change scenario to this no-climate-change baseline scenario.

The time series of growth-rate impacts owing to future climate change in region r and year y , δ r , y , are then added to the future baseline growth rates, π r , y (in log-diff form), obtained from the SSP2 scenario to yield trajectories of damaged GRPpc growth rates, ρ r , y . These trajectories are aggregated over time to estimate the future trajectory of GRPpc with future climate impacts:

in which GRPpc r , y =2020 is the initial log level of GRPpc. We begin damage estimates in 2020 to reflect the damages occurring since the end of the period for which we estimate the empirical models (1979–2019) and to match the timing of mitigation-cost estimates from most IAMs (see below).

For each emission scenario, this procedure is repeated 1,000 times while randomly sampling from the selection of climate models, the selection of empirical models with different numbers of lags (shown in Supplementary Figs. 1 – 3 and Supplementary Tables 2 – 4 ) and bootstrapped estimates of the regression parameters. The result is an ensemble of future GRPpc trajectories that reflect uncertainty from both physical climate change and the structural and sampling uncertainty of the empirical models.

Estimates of mitigation costs

We obtain IPCC estimates of the aggregate costs of emission mitigation from the AR6 Scenario Explorer and Database hosted by IIASA 23 . Specifically, we search the AR6 Scenarios Database World v1.1 for IAMs that provided estimates of global GDP and population under both a SSP2 baseline and a SSP2-RCP2.6 scenario to maintain consistency with the socio-economic and emission scenarios of the climate damage projections. We find five IAMs that provide data for these scenarios, namely, MESSAGE-GLOBIOM 1.0, REMIND-MAgPIE 1.5, AIM/GCE 2.0, GCAM 4.2 and WITCH-GLOBIOM 3.1. Of these five IAMs, we use the results only from the first three that passed the IPCC vetting procedure for reproducing historical emission and climate trajectories. We then estimate global mitigation costs as the percentage difference in global per capita GDP between the SSP2 baseline and the SSP2-RCP2.6 emission scenario. In the case of one of these IAMs, estimates of mitigation costs begin in 2020, whereas in the case of two others, mitigation costs begin in 2010. The mitigation cost estimates before 2020 in these two IAMs are mostly negligible, and our choice to begin comparison with damage estimates in 2020 is conservative with respect to the relative weight of climate damages compared with mitigation costs for these two IAMs.

Data availability

Data on economic production and ERA-5 climate data are publicly available at https://doi.org/10.5281/zenodo.4681306 (ref. 62 ) and https://www.ecmwf.int/en/forecasts/datasets/reanalysis-datasets/era5 , respectively. Data on mitigation costs are publicly available at https://data.ene.iiasa.ac.at/ar6/#/downloads . Processed climate and economic data, as well as all other necessary data for reproduction of the results, are available at the public repository https://doi.org/10.5281/zenodo.10562951  (ref. 63 ).

Code availability

All code necessary for reproduction of the results is available at the public repository https://doi.org/10.5281/zenodo.10562951  (ref. 63 ).

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Acknowledgements

We gratefully acknowledge financing from the Volkswagen Foundation and the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH on behalf of the Government of the Federal Republic of Germany and Federal Ministry for Economic Cooperation and Development (BMZ).

Open access funding provided by Potsdam-Institut für Klimafolgenforschung (PIK) e.V.

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Maximilian Kotz, Anders Levermann & Leonie Wenz

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Extended data figures and tables

Extended data fig. 1 constraining the persistence of historical climate impacts on economic growth rates..

The results of a panel-based fixed-effects distributed lag model for the effects of annual mean temperature ( a ), daily temperature variability ( b ), total annual precipitation ( c ), the number of wet days ( d ) and extreme daily precipitation ( e ) on sub-national economic growth rates. Point estimates show the effects of a 1 °C or one standard deviation increase (for temperature and precipitation variables, respectively) at the lower quartile, median and upper quartile of the relevant moderating variable (green, orange and purple, respectively) at different lagged periods after the initial shock (note that these are not cumulative effects). Climate variables are used in their first-differenced form (see main text for discussion) and the moderating climate variables are the annual mean temperature, seasonal temperature difference, total annual precipitation, number of wet days and annual mean temperature, respectively, in panels a – e (see Methods for further discussion). Error bars show the 95% confidence intervals having clustered standard errors by region. The within-region R 2 , Bayesian and Akaike information criteria for the model are shown at the top of the figure. This figure shows results with ten lags for each variable to demonstrate the observed levels of persistence, but our preferred specifications remove later lags based on the statistical significance of terms shown above and the information criteria shown in Extended Data Fig. 2 . The resulting models without later lags are shown in Supplementary Figs. 1 – 3 .

Extended Data Fig. 2 Incremental lag-selection procedure using information criteria and within-region R 2 .

Starting from a panel-based fixed-effects distributed lag model estimating the effects of climate on economic growth using the real historical data (as in equation ( 4 )) with ten lags for all climate variables (as shown in Extended Data Fig. 1 ), lags are incrementally removed for one climate variable at a time. The resulting Bayesian and Akaike information criteria are shown in a – e and f – j , respectively, and the within-region R 2 and number of observations in k – o and p – t , respectively. Different rows show the results when removing lags from different climate variables, ordered from top to bottom as annual mean temperature, daily temperature variability, total annual precipitation, the number of wet days and extreme annual precipitation. Information criteria show minima at approximately four lags for precipitation variables and ten to eight for temperature variables, indicating that including these numbers of lags does not lead to overfitting. See Supplementary Table 1 for an assessment using information criteria to determine whether including further climate variables causes overfitting.

Extended Data Fig. 3 Damages in our preferred specification that provides a robust lower bound on the persistence of climate impacts on economic growth versus damages in specifications of pure growth or pure level effects.

Estimates of future damages as shown in Fig. 1 but under the emission scenario RCP8.5 for three separate empirical specifications: in orange our preferred specification, which provides an empirical lower bound on the persistence of climate impacts on economic growth rates while avoiding assumptions of infinite persistence (see main text for further discussion); in purple a specification of ‘pure growth effects’ in which the first difference of climate variables is not taken and no lagged climate variables are included (the baseline specification of ref.  2 ); and in pink a specification of ‘pure level effects’ in which the first difference of climate variables is taken but no lagged terms are included.

Extended Data Fig. 4 Climate changes in different variables as a function of historical interannual variability.

Changes in each climate variable of interest from 1979–2019 to 2035–2065 under the high-emission scenario SSP5-RCP8.5, expressed as a percentage of the historical variability of each measure. Historical variability is estimated as the standard deviation of each detrended climate variable over the period 1979–2019 during which the empirical models were identified (detrending is appropriate because of the inclusion of region-specific linear time trends in the empirical models). See Supplementary Fig. 13 for changes expressed in standard units. Data on national administrative boundaries are obtained from the GADM database version 3.6 and are freely available for academic use ( https://gadm.org/ ).

Extended Data Fig. 5 Contribution of different climate variables to overall committed damages.

a , Climate damages in 2049 when using empirical models that account for all climate variables, changes in annual mean temperature only or changes in both annual mean temperature and one other climate variable (daily temperature variability, total annual precipitation, the number of wet days and extreme daily precipitation, respectively). b , The cumulative marginal effects of an increase in annual mean temperature of 1 °C, at different baseline temperatures, estimated from empirical models including all climate variables or annual mean temperature only. Estimates and uncertainty bars represent the median and 95% confidence intervals obtained from 1,000 block-bootstrap resamples from each of three different empirical models using eight, nine or ten lags of temperature terms.

Extended Data Fig. 6 The difference in committed damages between the upper and lower quartiles of countries when ranked by GDP and cumulative historical emissions.

Quartiles are defined using a population weighting, as are the average committed damages across each quartile group. The violin plots indicate the distribution of differences between quartiles across the two extreme emission scenarios (RCP2.6 and RCP8.5) and the uncertainty sampling procedure outlined in Methods , which accounts for uncertainty arising from the choice of lags in the empirical models, uncertainty in the empirical model parameter estimates, as well as the climate model projections. Bars indicate the median, as well as the 10th and 90th percentiles and upper and lower sixths of the distribution reflecting the very likely and likely ranges following the likelihood classification adopted by the IPCC.

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Kotz, M., Levermann, A. & Wenz, L. The economic commitment of climate change. Nature 628 , 551–557 (2024). https://doi.org/10.1038/s41586-024-07219-0

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Freedom for the Wolves

Neoliberal orthodoxy holds that economic freedom is the basis of every other kind. That orthodoxy, a Nobel economist says, is not only false; it is devouring itself.

A ny discussion of freedom must begin with a discussion of whose freedom we’re talking about. The freedom of some to harm others, or the freedom of others not to be harmed? Too often, we have not balanced the equation well: gun owners versus victims of gun violence; chemical companies versus the millions who suffer from toxic pollution; monopolistic drug companies versus patients who die or whose health worsens because they can’t afford to buy medicine.

Understanding the meaning of freedom is central to creating an economic and political system that delivers not only on efficiency, equity, and sustainability but also on moral values. Freedom—understood as having inherent ties to notions of equity, justice, and well-being—is itself a central value. And it is this broad notion of freedom that has been given short shrift by powerful strands in modern economic thinking—notably the one that goes by the shorthand term neoliberalism , the belief that the freedom that matters most, and from which other freedoms indeed flow, is the freedom of unregulated, unfettered markets.

F. A. Hayek and Milton Friedman were the most notable 20th-century defenders of unrestrained capitalism. The idea of “unfettered markets”—markets without rules and regulations—is an oxymoron because without rules and regulations enforced by government, there could and would be little trade. Cheating would be rampant, trust low. A world without restraints would be a jungle in which only power mattered, determining who got what and who did what. It wouldn’t be a market at all.

Nonetheless, Hayek and Friedman argued that capitalism as they interpreted it, with free and unfettered markets, was the best system in terms of efficiency, and that without free markets and free enterprise, we could not and would not have individual freedom. They believed that markets on their own would somehow remain competitive. Remarkably, they had already forgotten—or ignored—the experiences of monopolization and concentration of economic power that had led to the Sherman Antitrust Act (1890) and the Clayton Antitrust Act (1914). As government intervention grew in response to the Great Depression, Hayek worried that we were on “the road to serfdom,” as he put it in his 1944 book of that title; that is, on the road to a society in which individuals would become subservient to the state.

Rogé Karma: Why America abandoned the greatest economy in history

My own conclusions have been radically different. It was because of democratic demands that democratic governments, such as that of the U.S., responded to the Great Depression through collective action. The failure of governments to respond adequately to soaring unemployment in Germany led to the rise of Hitler. Today, it is neoliberalism that has brought massive inequalities and provided fertile ground for dangerous populists. Neoliberalism’s grim record includes freeing financial markets to precipitate the largest financial crisis in three-quarters of a century, freeing international trade to accelerate deindustrialization, and freeing corporations to exploit consumers, workers, and the environment alike. Contrary to what Friedman suggested in his 1962 book, Capitalism and Freedom , this form of capitalism does not enhance freedom in our society. Instead, it has led to the freedom of a few at the expense of the many. As Isaiah Berlin would have it: Freedom for the wolves; death for the sheep.

I t is remarkable that , in spite of all the failures and inequities of the current system, so many people still champion the idea of an unfettered free-market economy. This despite the daily frustrations of dealing with health-care companies, insurance companies, credit-card companies, telephone companies, landlords, airlines, and every other manifestation of modern society. When there’s a problem, ordinary citizens are told by prominent voices to “leave it to the market.” They’ve even been told that the market can solve problems that one might have thought would require society-wide action and coordination, some larger sense of the public good, and some measure of compulsion. It’s purely wishful thinking. And it’s only one side of the fairy tale. The other side is that the market is efficient and wise, and that government is inefficient and rapacious.

Mindsets, once created, are hard to change. Many Americans still think of the United States as a land of opportunity. They still believe in something called the American dream, even though for decades the statistics have painted a darker picture. The rate of absolute income mobility—that is, the percentage of children who earn more than their parents—has been declining steadily since the Second World War. Of course, America should aspire to be a land of opportunity, but clinging to beliefs that are not supported by today’s realities—and that hold that markets by themselves are a solution to today’s problems—is not helpful. Economic conditions bear this out, as more Americans are coming to understand. Unfettered markets have created, or helped create, many of the central problems we face, including manifold inequalities, the climate crisis, and the opioid crisis. And markets by themselves cannot solve any of our large, collective problems. They cannot manage the massive structural changes that we are going through—including global warming, artificial intelligence, and the realignment of geopolitics.

All of these issues present inconvenient truths to the free-market mindset. If externalities such as these are important, then collective action is important. But how to come to collective agreement about the regulations that govern society? Small communities can sometimes achieve a broad consensus, though typically far from unanimity. Larger societies have a harder go of it. Many of the crucial values and presumptions at play are what economists, philosophers, and mathematicians refer to as “primitives”—underlying assumptions that, although they can be debated, cannot be resolved. In America today we are divided over such assumptions, and the divisions have widened.

The consequences of neoliberalism point to part of the reason: specifically, growing income and wealth disparities and the polarization caused by the media. In theory, economic freedom was supposed to be the bedrock basis for political freedom and democratic health. The opposite has proved to be true. The rich and the elites have a disproportionate voice in shaping both government policies and societal narratives. All of which leads to an enhanced sense by those who are not wealthy that the system is rigged and unfair, which makes healing divisions all the more difficult.

Chris Murphy: The wreckage of neoliberalism

As income inequalities grow, people wind up living in different worlds. They don’t interact. A large body of evidence shows that economic segregation is widening and has consequences, for instance, with regard to how each side thinks and feels about the other. The poorest members of society see the world as stacked against them and give up on their aspirations; the wealthiest develop a sense of entitlement, and their wealth helps ensure that the system stays as it is.

The media, including social media, provide another source of division. More and more in the hands of a very few, the media have immense power to shape societal narratives and have played an obvious role in polarization. The business model of much of the media entails stoking divides. Fox News, for instance, discovered that it was better to have a devoted right-wing audience that watched only Fox than to have a broader audience attracted to more balanced reporting. Social-media companies have discovered that it’s profitable to get engagement through enragement. Social-media sites can develop their algorithms to effectively refine whom to target even if that means providing different information to different users.

N eoliberal theorists and their beneficiaries may be happy to live with all this. They are doing very well by it. They forget that, for all the rhetoric, free markets can’t function without strong democracies beneath them—the kind of democracies that neoliberalism puts under threat. In a very direct way, neoliberal capitalism is devouring itself.

Not only are neoliberal economies inefficient at dealing with collective issues, but neoliberalism as an economic system is not sustainable on its own. To take one fundamental element: A market economy runs on trust. Adam Smith himself emphasized the importance of trust, recognizing that society couldn’t survive if people brazenly followed their own self-interest rather than good codes of conduct:

The regard to those general rules of conduct, is what is properly called a sense of duty, a principle of the greatest consequence in human life, and the only principle by which the bulk of mankind are capable of directing their actions … Upon the tolerable observance of these duties, depends the very existence of human society, which would crumble into nothing if mankind were not generally impressed with a reverence for those important rules of conduct.

For instance, contracts have to be honored. The cost of enforcing every single contract through the courts would be unbearable. And with no trust in the future, why would anybody save or invest? The incentives of neoliberal capitalism focus on self-interest and material well-being, and have done much to weaken trust. Without adequate regulation, too many people, in the pursuit of their own self-interest, will conduct themselves in an untrustworthy way, sliding to the edge of what is legal, overstepping the bounds of what is moral. Neoliberalism helps create selfish and untrustworthy people. A “businessman” like Donald Trump can flourish for years, even decades, taking advantage of others. If Trump were the norm rather than the exception, commerce and industry would grind to a halt.

We also need regulations and laws to make sure that there are no concentrations of economic power. Business seeks to collude and would do so even more in the absence of antitrust laws. But even playing within current guardrails, there’s a strong tendency for the agglomeration of power. The neoliberal ideal of free, competitive markets would, without government intervention, be evanescent.

We’ve also seen that those with power too often do whatever they can to maintain it. They write the rules to sustain and enhance power, not to curb or diminish it. Competition laws are eviscerated. Enforcement of banking and environmental laws is weakened. In this world of neoliberal capitalism, wealth and power are ever ascendant.

Neoliberalism undermines the sustainability of democracy—the opposite of what Hayek and Friedman intended or claimed. We have created a vicious circle of economic and political inequality, one that locks in more freedom for the rich and leaves less for the poor, at least in the United States, where money plays such a large role in politics.

Read: When Milton Friedman ran the show

There are many ways in which economic power gets translated into political power and undermines the fundamental democratic value of one person casting one vote. The reality is that some people’s voices are much louder than others. In some countries, accruing power is as crude as literally buying votes, with the wealthy having more money to buy more votes. In advanced countries, the wealthy use their influence in the media and elsewhere to create self-serving narratives that in turn become the conventional wisdom. For instance, certain rules and regulations and government interventions—tax cuts for the wealthiest Americans, deregulation of key industries—that are purely in the interest of the rich and powerful are also, it is said, in the national interest. Too often that viewpoint is swallowed wholesale. If persuasion doesn’t work, there is always fear: If the banks are not bailed out, the economic system will collapse, and everyone will be worse off. If the corporate tax rate is not cut, firms will leave and go to other jurisdictions that are more business-friendly.

Is a free society one in which a few dictate the terms of engagement? In which a few control the major media and use that control to decide what the populace sees and hears? We now inhabit a polarized world in which different groups live in different universes, disagreeing not only on values but on facts.

A strong democracy can’t be sustained by neoliberal economics for a further reason. Neoliberalism has given rise to enormous “rents”—the monopoly profits that are a major source of today’s inequalities. Much is at stake, especially for many in the top one percent, centered on the enormous accretion of wealth that the system has allowed. Democracy requires compromise if it is to remain functional, but compromise is difficult when there is so much at stake in terms of both economic and political power.

A free-market, competitive, neoliberal economy combined with a liberal democracy does not constitute a stable equilibrium—not without strong guardrails and a broad societal consensus on the need to curb wealth inequality and money’s role in politics. The guardrails come in many forms, such as competition policy, to prevent the creation, maintenance, and abuse of market power. We need checks and balances, not just within government, as every schoolchild in the U.S. learns, but more broadly within society. Strong democracy, with widespread participation, is also part of what is required, which means working to strike down laws intended to decrease democratic participation or to gerrymander districts where politicians will never lose their seats.

Whether America’s political and economic system today has enough safeguards to sustain economic and political freedoms is open to serious question.

U nder the very name of freedom, neoliberals and their allies on the radical right have advocated policies that restrict the opportunities and freedoms, both political and economic, of the many in favor of the few. All these failures have hurt large numbers of people around the world, many of whom have responded by turning to populism, drawn to authoritarian figures like Trump, Jair Bolsonaro, Vladimir Putin, and Narendra Modi.

Perhaps we should not be surprised by where the U.S. has landed. It is a country now so divided that even a peaceful transition of power is difficult, where life expectancy is the lowest among advanced nations, and where we can’t agree about truth or how it might best be ascertained or verified. Conspiracy theories abound. The values of the Enlightenment have to be relitigated daily.

There are good reasons to worry whether America’s form of ersatz capitalism and flawed democracy is sustainable. The incongruities between lofty ideals and stark realities are too great. It’s a political system that claims to cherish freedom above all else but in many ways is structured to deny or restrict freedoms for many of its citizens.

I do believe that there is broad consensus on key elements of what constitutes a good and decent society, and on what kind of economic system supports that society. A good society, for instance, must live in harmony with nature. Our current capitalism has made a mess of this. A good society allows individuals to flourish and live up to their potential. In terms of education alone, our current capitalism is failing large portions of the population. A good economic system would encourage people to be honest and empathetic, and foster the ability to cooperate with others. The current capitalist system encourages the antithesis.

But the key first step is changing our mindset. Friedman and Hayek argued that economic and political freedoms are intimately connected, with the former necessary for the latter. But the economic system that has evolved—largely under the influence of these thinkers and others like them—undermines meaningful democracy and political freedom. In the end, it will undermine the very neoliberalism that has served them so well.

For a long time, the right has tried to establish a monopoly over the invocation of freedom , almost as a trademark. It’s time to reclaim the word.

This article has been adapted from Joseph E. Stiglitz’s new book, The Road to Freedom: Economics and the Good Society .

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Congress approved a TikTok ban. Why it could still be years before it takes effect.

TikTok’s fate in the U.S. has never been more in doubt after Congress approved a bill that gives its parent company two options: sell it to an approved buyer or see it banned.

President Joe Biden signed the legislation into law on Wednesday. 

But it could take years for the TikTok ban to actually go into effect, since its Chinese-owned parent company, ByteDance, is likely to challenge the statute in court. 

And even if it survives a legal challenge, no one is quite sure what would happen next. 

How soon could a potential ban take effect?

It would probably be several years from now.

According to the statute’s language, ByteDance would have nine months to divest and find an American buyer for TikTok once the bill is signed into law. 

On top of that, the president can push back the deadline by an additional 90 days. 

That means, without a sale, the soonest TikTok could shut down in the U.S. would be more than one year from now.  

But it’s more complicated than that. 

If ByteDance sues to block the implementation of the statute — which it has said it would do — the bill will be taken up by the D.C. Circuit Court of Appeals, according to Isaac Boltansky, director of policy for the financial services firm BTIG.

Boltansky said ByteDance would file a suit no later than this fall. And while the case is under judicial review, the “clock” on any ban is effectively paused, he said. 

Once the D.C. court issues its ruling, whichever side loses is likely to request a review by the U.S. Supreme Court.

That would forestall the ban by another year — meaning nothing would go into effect until 2026, Boltansky said.

TikTok will argue that the ban is unconstitutional and that it’s also taken steps to protect American users’ data. The app has already launched an aggressive lobbying campaign, featuring a number of small-business owners and influencers who say it's their lifeblood.

“We have got to make enough noise so that they don’t take away our voice,” TikTok user @dadlifejason, who has 13.8 million followers, says in a TikTok ad shared on social media.

What about finding a buyer?

The bill stipulates that TikTok can continue to operate in the U.S. if ByteDance sells the app to a U.S.-approved firm. 

While large U.S. tech companies would love to get their hands on the platform, Boltansky said that Biden administration regulators — not to mention GOP critics of Big Tech firms — have no interest in expanding the power, reach or influence of such companies.  

Some other outside groups might emerge. At least one led by Steve Mnuchin, who was Treasury secretary in the Trump administration, has already sought to make a bid, telling CNBC in March that he was putting together an investor group . The Wall Street Journal has also reported that former Activision Blizzard CEO Bobby Kotick was looking for potential buyer partners. While ByteDance, which owns other companies, is worth hundreds of billions of dollars, TikTok would fetch less than that, experts say — especially if it is sold without its powerful recommendation algorithm.  

But Boltansky believes ByteDance is unlikely to agree to any kind of sale. The Chinese government has said as much, arguing that it regards the algorithm as a national security asset. And without that, TikTok becomes much less appealing to potential buyers.    

So is TikTok in the U.S. going away?

It might — but the ultimate impact may be limited. The fact is, most TikTok users already have a presence on other platforms, so the impact on their livelihoods to the extent that they operate businesses on TikTok could be limited.

According to a survey from the financial services group Wedbush, approximately 60% of TikTok user respondents said they’d simply migrate to Instagram (or Facebook) in the event of a sale, while 19% said they’d go to YouTube. 

Analysts with financial services company Bernstein arrived at similar estimates. In a note to clients, they forecast that Meta, which owns Instagram and Facebook, would take over as much as 60% of TikTok’s U.S. ad revenue, with YouTube gaining 25%. Snapchat would also benefit, they said. 

Why did lawmakers feel they needed to take this drastic step?

Boltansky said many political pundits remain surprised that the bill got over the finish line. But a wave of anxiety about both Chinese influence and the impact of social media on youth converged to get it passed.

“This has been noteworthy,” Boltansky said. “Everyone is so conditioned to D.C. doing nothing or the bare minimum to keep the lights on.”

As tensions with Beijing have grown, congressional lawmakers, along with top law enforcement officials, have warned that TikTok is controlled by the Chinese Communist Party (CCP) and is a national security threat to the United States.

“It screams out with national security concerns,” FBI Director Christopher Wray testified on Capitol Hill last year

U.S. officials fear that the Chinese government is using TikTok to access data from, and spy on, its American users, spreading disinformation and conspiracy theories.

It felt like a TikTok ban was moving slowly, then quickly. What happened?

The House passed its standalone TikTok bill on a big bipartisan vote in March. But the Senate appeared in no hurry to take up the measure as Commerce Chair Maria Cantwell, D-Wash., drafted her own legislation.

That all changed when Speaker Mike Johnson, R-La., working with the White House, rolled out his $95 billion foreign aid supplemental plan last week that included billions of dollars for Ukraine, Israel and Taiwan. 

Included in that sweeping aid package: the House’s TikTok bill, with some minor changes. Johnson pushed the package through his chamber, then sent the House on a recess, forcing the Senate to take it or leave it.

Rather than further delay the critical, long-stalled military and humanitarian aid, the Democratic-controlled Senate is moving to quickly pass the package — including the TikTok bill and other Johnson priorities.

Rob Wile is a breaking business news reporter for NBC News Digital.

Scott Wong is a senior congressional reporter for NBC News.