Climate Change and Poverty Traps: Adopting an Integrated Model Framework

This paper develops a tractable North-South framework with overlapping generations and endogenous growth dynamics to study poverty traps in the light of climate change. Global pollution is a negative externality of capital accumulation in both world regions, and climate change causes damages to the stock of physical capital in the more vulnerable South. Non-linearities in global pollution dynamics, in the impact and abatement functions and in the production structure give rise to critical threshold effects, possibly leading to a long-run equilibrium with persistent poverty. Climate policy in the North that aims to reduce global emissions lowers the risk of the South falling into a climate-poverty trap by mitigating climate-induced capital depreciation. This transmission channel highlights the critical role of proactive climate policy in the North in preventing climate-induced poverty traps in the capital-poor South.