This interdisciplinary paper uses world-systems analysis as a theoretical framework to argue that both the 1870s, 1930â€™s economic depressions reduced mean global temperatures. As global consumer demand fell, factories worldwide began producing less commodities and, as a result, emitted less greenhouse gasses. We find that in both instances there is evidence to support the hypothesis that financial crises lead to cooler temperatures.Kondratiev waves, Schumpeter, world-systems analysis, environmental economics, global climate change, Environmental Economics and Policy, Financial Economics, N22, N50, Q54,

Giedraitis, Vincentas Rolandas

Girdenas, Sarunas

Rovas, Adomas

English

Research Papers in Economics

Perspectives of Innovations, Economics & Business, Volume 4, Issue 1, 2010          
www.pieb.cz 
 
International Cross-Industry Journal  
7
CHALLENGES OF GLOBALIZATION 
FEELING THE HEAT: FINANCIAL CRISES   
AND THEIR IMPACT ON GLOBAL         
CLIMATE CHANGE 
  VINCENTAS GIEDRAITIS, PH.D. 
Department of Theoretical Economics 
Vilnius University, Lithuania 
 
SARUNAS GIRDENAS, 
Department of Sociology,Vilnius University 
 
ADOMAS ROVAS, 
Department of Molecular Biology, Vilnius University 
JEL Classifications: N22, N50, Q54 
Key words: Kondratiev waves, Schumpeter, world-systems analysis, environmental economics, global climate change. 
Abstract: This interdisciplinary paper uses world-systems analysis as a theoretical framework to argue that both the 1870s, 
1930’s economic depressions reduced mean global temperatures. As global consumer demand fell, factories worldwide began 
producing less commodities and, as a result, emitted less greenhouse gasses. We find that in both instances there is evidence to 
support the hypothesis that financial crises lead to cooler temperatures. 
ISSN: 1804-0527 (online)  1804-0519 (print)    PP. 7-10 
 
 
Purpose and overview 
The  paper  addresses  two  very  popular  contemporary 
topics:  the  issue  of  global  climate  change  and  economic 
crises.  We  borrow  from  the  fields  of  economics  and  the 
natural  sciences  to  provide  a  preliminary  investigation  into 
possible connections between different financial crises (1870s 
and  1930s)  and  global  climate  change,  specifically  global 
warming. Our basic argument is that during financial crises 
consumer spending drops, causing industries to operate less, 
and thereby emit less greenhouse gases, specifically carbon 
dioxide (CO2).  
Review of literature and theoretical framework 
One way to understand the global economy is the world-
systemic  perspective,  which  developed  as  a  reaction  to 
dependency  theorists  (Amin,  1976  and  1994;  Kohler  and 
Tausch,  2002;  Yotopolous  and  Sawada,  2005;  Giedraitis, 
2007).  During  the  1970s,  historical  economic  sociologists 
such as Wallerstein (1974) and Frank (1978) began to theorize 
an expanding European economic world-system, which could 
be used to explain the historical economic development (or 
lack thereof) of countries around the world. This model sees 
capitalist market relations as a means of wealth redistribution, 
from the poor peripheral countries to rich core countries, or 
from  the  global  South  to  the  global  North  (Arrighi,  1995; 
Turchin 2007).  
 One  of  the  structural  constants  of  the  world-systemic 
perspective is the assumption of centuries old business cycles. 
This emphasis on 45 to 60 year Kondratiev business cycles 
have been criticized by some for not explaining the origins of 
the  cycle,  or  Kondratiev  waves  as  being  simply  economic 
correlations  rather  than  a  cause  of  economic  growth  or 
depression  (Solomou,  2004).  Empirical  evidence,  however, 
indicates  a  correlation  between  the  trough  of  a  Kondratiev 
wave (e.g. 1870 and 1930), and economic depressions.  
 Schumpeter (1943) placed great emphasis on the role of 
Kondratiev waves in explaining the expansion of businesses 
through innovation. Rather than a condition of stagnation via 
Walrasian equilibrium, Schumpeter noted that innovators can 
breathe life into an economy through the introduction of new 
technologies  and  innovations  (Giedraitis  and  Rasteniene, 
2009). For example, Schumpeter noted that the steam engine 
as perfected by James Watt in the 1760s helped to bring about 
the Industrial Revolution. 
However, with the arrival of the industrial revolution came 
an  increase  in  emissions  of  greenhouse  gases.  Coal  fueled 
steam power enabled the transition of a manual labor based 
economy to machine-based manufacturing. This resulted in a 
significant  increase  in  production  capacity.  Further 
development of technologies, mainly heavy industry, ensured 
continuing economic growth. This, however, was harmful to 
environment, mostly because of rapidly increasing CO2 and 
other greenhouse gas emissions.  
There is a strong correlation between CO2 concentrations 
in the  atmosphere  and  economic situations  which  could  be 
seen  during  recession  periods,  when  industrial  activity 
decreases. During the first significant financial crisis after the 
beginning of the industrial revolution, “The Panic of 1873”, 
CO2 emissions on a global scale reduced. The graph in Figure 
1 represents an obvious growing trend in CO2 concentrations, 
but in the year 1874 it reaches a bottom line (Figure 1). 
Another  example  illustrating  the  link  between  CO2 
emission  capacity  and  industrial  activity  level  is  the  Great 
Depression of the 1930s. This recession had a bigger impact Perspectives of Innovations, Economics & Business, Volume 4, Issue 1, 2010          
www.pieb.cz 
 
International Cross-Industry Journal  
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on industry and lasted longer than The Panic of 1873, since 
industrial  capacity  was  much  greater.  Therefore  the 
correlation  seen  in  Figure  2  is  much  more  significant    
(Figure  2).  It  is  important  to  emphasize  that  CO2 
concentrations since the beginning of the industrial revolution 
rises  rapidly  with  very  few  fluctuations.  Consequently, 
economic  recessions  not  only  decrease  CO2  emissions,  but 
also prevent their increase. During both mentioned crises no 
significant  change  in  volcanic  activity  were  recorded 
(volcanic  eruptions  cause  much  more  sudden  increase  in 
atmospheric  CO2  concentrations  than  other  natural  events 
which  alter  the  contents  of  atmosphere  more  gradually). 
Therefore  we  infer  that  a  decrease  in  emissions  during 
economic  recessions  is  mostly  caused  because  of 
anthropogenic factors rather than natural ones.  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIGURE 3. ANNUAL TEMPERATURE CHANGES IN YEAR 1940-1960 
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FIGURE 2: QUANTITY OF CO2 EMITTED DURING 1930S DEPRESSION 
FIGURE 1: QUANTITY OF CO2 EMITTED DURING CRISES 
 
147 
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Year Perspectives of Innovations, Economics & Business, Volume 4, Issue 1, 2010          
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International Cross-Industry Journal  
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Even though there is a link between the economic climate 
and CO2 concentrations, as Figures 1 and 2 show, no similar 
correlation  could  be  found  between  reduced  CO2  emission 
capacity and decreased annual temperature. The atmospheric 
lifetime of CO2  gas is approximately two years, because that 
is  the  average  time  needed  for  any  CO2  molecule  to  be 
incorporated into plants via photosynthesis, mix into ocean or 
leave the atmosphere by other processes. While the economic 
downturns in the 1870s and 1930s lasted from 2 to 4 years, 
this period of time is too short for all cumulative CO2  to be 
removed  from  the  atmosphere,  therefore  no  significant 
decrease  in  annual  temperature  could  be  seen  during 
economic crisis. 
However, changes in economic situations do have a quite 
sudden and important impact on annual global temperature. A 
rapid  economic  recovery  after  a  crisis  stimulates  intense 
increase in industrial activity, which leads to large pollution 
levels. Among those contaminants, sulfate aerosols including 
sulfur  dioxide  (SO2),  are  the  most  important  factors  in 
changing  annual  global  temperatures,  because  they  have  a 
significant cooling effect on the earth. The aerosols help form 
clouds with more water droplets, which reflect solar radiation 
more efficiently than clouds with fewer droplets. Therefore, 
the rise in in sulphate aerosols due to a sudden increase in 
industrial  activities  cools  the  earth’s  temperature.  For 
instance, in the first half of the 20th century a rapid economic 
recovery after the Great Depression and World War 2 resulted 
in  large  amounts  of  cumulative  sulfate  aerosols  in  the 
stratosphere.  As  Figure  3  shows,  this  led  to  the  most 
significant cooling since the beginning of the industrial era. 
During this period of time, there again were no major volcanic 
eruptions which would emit large amounts of SO2. 
TABLE 1. CORRELATION BETWEEN VARIABLES 
 
GDP  CO2 
GDP  Pearson Correlation  1.000  .478
* 
Sig. (2-tailed) 
 
0.012 
N  27.000  27 
CO2  Pearson Correlation  .478
*  1.000 
Sig. (2-tailed)  0.012 
 
N  27  27.000 
* Correlation is significant at the 0.05 level (2-tailed).   
TABLE 2. MODEL FIT 
Model  R  R  
Square 
Adjusted R 
 Square 
  .478
a  0.228  0.197 
a. Predictors: (Constant), CO2 
In order to base our predictions about statistical relations 
between world gross domestic product (GDP) dynamics and 
CO2  emission  level,  we  made  simple  calculations  using 
statistical software. We gathered data from the International 
Monetary Fund database and CO2 emissions from the Carbon 
Dioxide Information Analysis Centre during the period 1980 - 
2006. We used 27 valid cases which we used to construct a 
statistical model, so these calculations should be understood 
not as a final model, but as a tool to check our predictions. We 
assumed  that  global  GDP  is  the  independent  variable  and 
global CO2 emissions level is the dependent variable.  
Firstly,  we  ran  simple  linear  correlation,  with  results 
presented in Table 1. According to our calculations, there is a 
correlation between these two variables, but Pearson criteria 
indicates that it is not very strong. Thus, we infer that GDP 
growth  leads  to  a  higher  CO2  quantity  in  the  earth’s 
atmosphere.  Also,  as  noted,  we  identify  a  clear  relation 
between GDP and CO2 emissions because we control for all 
natural activity, such as volcanic eruptions (Table 1). 
Next,  we  ran  more  calculations  to  check  the  statistical 
model  compatibility  to  the  data.  Results  are  shown  in  the 
Table 2. R² criteria is 0.228, which we interpret as a weak 
relation  between  our  model  and  data.  This  could  happen 
because of two reasons: there is not enough data to verify a 
strong correlation, or the time frame we analyzed is not an 
aggregate  period  of  economic  crisis, suggesting there is no 
evident overall decrease in global GDP.  
When  discussing  the  relation  between  world  GDP  and 
CO2 emission levels, we must take into consideration a few 
aspects of criticism by Kolstad (2007). Firstly, scientist argue 
that  one  indicator  (in  most  cases  GDP  and/or  income  per 
capita) does not reflect the development stage of and entire 
country’s economy. What is more, we must also choose other 
indicators,  which  do  not  necessarily  reflect  the  level  of 
pollution. Secondly, almost every aspect of economic policy 
is influenced by the government. There is no way to avoid this 
impact.  For  instance,  if  the  government  objective  is  to 
improve economic performance, it will take no measures to 
reduce  CO2  emissions.  Thirdly,  in  most  cases  a  country’s 
inhabitants must choose between a lower prices and higher 
pollution levels and higher prices and lower pollution levels. 
According to the classical economic approach, people tend to 
choose lower prices, because at the moment they do not see 
the consequences of higher pollution level, whereas the lower 
price effects is obvious. Fourth, marginal costs of reducing 
pollution must be considered. For the economies which rely 
on heavy industries, this is crucial solution, because reducing 
carbon dioxide emissions will demand a large cost, while for 
the  economies  which  rely  on  the  service  sector,  it  will  be 
cheaper to reduce pollution.  
There  are  some  conditions,  under  which  the 
Environmental Kuznets Curve (EKC) could be applied to the 
economy (Deacon, 2006). The EKC essentially suggests that 
as GDP per capita increases along with industrial production, 
pollution increases, then begins to decrease. The EKC does 
not, however, hold for CO2 emissions. There might be some 
countries,  where  there  are  no  purely  linear  correlations 
between economic growth and CO2 emission. In this paper we 
ran  preliminary  calculations  (simple  linear  correlation), 
because our aim was not to construct an accurate statistical 
model, but to reveal basic tendencies. Perspectives of Innovations, Economics & Business, Volume 4, Issue 1, 2010          
www.pieb.cz 
 
International Cross-Industry Journal  
10 
 Conclusion 
These preliminary calculations indicated that we are on the 
right  track  and  there  is  indeed  a  statistical  relationship 
between  global  GDP  dynamics  and  CO2  emission  levels. 
Moreover, we require more data and further calculations to 
identify a clear descriptive model of this relation. In our future 
work we plan to include more variables (such as temperature) 
and create predictive statistical model, which could be used as 
tool to predict future level of CO2 emissions. 
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Feeling the heat: Financial crises and their impact on global climate change

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