An examination of the International Trade Impacts of Climate Change

This paper provides an analysis of how climate change damages will affect international trade in the coming decades and how international trade can help limit the costs of climate change. Using a dynamic computable general equilibrium model with global coverage, the OECD ENV-Linkage model, the paper analyses the impacts of climate change on trade considering indirect impacts resulting from changes in endowments and production. The paper also investigates trade as a means of reducing the negative economic consequences of climate change, i.e. as an instrument of adaptation to climate change. Given the significant growth in baseline trade volumes projected over the coming decades, in absolute levels trade flows are still projected to grow when climate damages are accounted for. The economic consequences of climate change are especially strong in Africa and Asia, where high economic growth rates are combined with increased trade dependency and large damages from climate change. In terms of economic sectors, trade in agricultural commodities is projected to be relatively strongly impacted by climate damages, as these goods are heavily internationally traded. Focusing on the impact of agricultural damages from climate change on food products, and using Revealed Comparative Advantage (RCA) as an indicator of regional competitiveness, this paper finds that while the ranking of comparative advantage is largely unchanged by climate change damages on the agricultural sector, there are significant effects for some countries. The effects are particularly large for the regions that are most specialised in food and agricultural products.