Climate change adaptation, agriculture and poverty: A general equilibrium analysis for Nepal

This paper presents a model of climate change adaptation in the Nepalese economy and uses it to simulate long-run impacts of climate change and cropland re-allocation on household poverty. We develop a computable general equilibrium (CGE) model for Nepal, with a nested set of constant elasticity of transformation (CET) functional forms to model the allocation of land within different agricultural sectors. Supply of land depends on the magnitude of effects of climate change on different crops. Land transformation elasticities in the CET functions reflect the ease of switching from one crop to another based on their agronomic characteristics and degree of impacts of climate change. The distinguishing feature of the model is flexibility of CET values. Use of a set of CET values at the sectoral level thus captures the transformation effects of agronomic feasibility and profitability of crops while, at the same time, retaining the role of price relativity in the demand side of land along with other factors of production. The results suggest that, in the long run, farmers tend to allocate land to crops that are comparatively less impacted by climate change, such as paddy. Furthermore, the results reveal that land re-allocation tends to reduce income disparity among household groups and poverty by significantly moderating the income losses of marginal farmers.