The Crucial Role of International Trade in Adaptation to Climate Change

• Agricultural Economics Workshop

Date and Location

Thursday, March 1, 2018, 4:10 PM - 5:30 PM
ARE Library Conference Room, 4101 Social Sciences and Humanities

Abstract

Climate change effects on agricultural yields will be uneven over the world with a few countries, mostly in high latitudes, that may experience gains, while most will see average yield decrease. This paper aims at quantifying the role of international trade in attenuating the effects of climate change by allowing the expression of the new climate-induced pattern of comparative advantages. Most previous studies have failed to make the connection with modern theories of acreage and land use choice, casting doubts about the validity of the agricultural production changes that drive a lot of the results. Here, we develop a new quantitative general equilibrium trade model where the representation of land-use choice is consistent with recent theory. The model is calibrated on spatially explicit information about potential yields before and after climate change coming from the agronomic literature. The results show that, because demand for food is quite inelastic, the climate-induced yield changes generate large price movements that incentivize adjustments in acreage and trade. The new trade pattern is very different from the current one showing the important role of trade flows in adapting to climate change. This is confirmed by large increased welfare losses from climate change when adjustments in trade flows are constrained.