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Quantifying climate damages when regions trade: a structural gravity approach

Author

Listed:
  • Astier, Jeanne
  • Barrows, Geoffrey
  • Calel, Raphael
  • Ollivier, Hélène

Abstract

This paper presents a method for estimating treatment effects of local climate shocks when regions trade with each other. Because trade creates spillovers, comparing the change in outcomes of regions with different exposure to shocks leads to biased estimates. We model these between-region spillovers using standard assumptions from international trade theory, and develop a model-consistent strategy for estimating key parameters and deriving counterfactuals. We use our estimation strategy to revisit the literature on the impact of climate change on gross output. We find that accounting for trade spillovers yields substantially larger climate damage projections.

Suggested Citation

  • Astier, Jeanne & Barrows, Geoffrey & Calel, Raphael & Ollivier, Hélène, 2026. "Quantifying climate damages when regions trade: a structural gravity approach," LSE Research Online Documents on Economics 138243, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:138243
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    File URL: https://researchonline.lse.ac.uk/id/eprint/138243/
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    JEL classification:

    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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