The impact of climate change on developed economies

•We use sub-national data to examine the temperature-growth relationship.•We study both the United States and the European Union.•We find that the optimal temperature is at about 6 °C.•IPCC projected warming has significantly negative impact on economic growth.•Our results suggest more proactive climate policy.

We use sub-national data to examine the relationship between temperature and growth within the United States and the European Union. Different from previous studies based on national data, we find that the optimal temperature is much lower. Because most of production takes place in areas with temperatures above the optimal temperature, projected temperature increases have significantly negative impact on the economic growth of the United States and the European Union. Our results suggest more proactive climate policy.