In search of factors that explain the impact of climate change on international trade

Climate change impacts international trade. The literature suggests that thisrelationship is driven by the damage to infrastructure and reduced productivitycaused by this global phenomenon. Furthermore, recent research indicates thatthe impact on energy consumption could explain the real effects of disasters inthe United States. Using a sample of 67 countries during the period 1986–2016,we analyze whether the secular increase in global temperatures and theoccurrence of drastic climate events (wildfires, floods, extreme temperatures,epidemics, insect infestations, storms, droughts, and landslides) affectcountries’ energy consumption and labor productivity, which can subsequentlyimpact international trade. By estimating a theory-based gravity model, ourresults suggest that energy intensity is the channel through which risingtemperatures affect international trade. Furthermore, the impact of events oninternational trade does not seem to be channeled through either energyefficiency or labor productivity. A deeper analysis suggests the key role playedby China in this regard. The Chinese government’s enormous investment ininfrastructure since 1998 to manage these types of disasters seems to be themost reasonable explanation.