The Crucial Role of International Trade in Adaptation to Climate Change

Climate change effects on agricultural yields will be uneven over the world with a few countries, mostly in high latitudes, that may experience gains, while most will see average yield decrease. This paper aims at quantifying the role of international trade in attenuating the effects of climate change by allowing the expression of the new climate-induced pattern of comparative advantages. To do this, we develop a quantitative general equilibrium trade model where the representation of acreage and land use choices is inspired from modern Ricardian trade models but also consistent with theoretical and empirical literature on land use choices. The model is calibrated on spatially explicit information about potential yields before and after climate change coming from the agronomic literature. The results show that the climate-induced yield changes generate large price movements that incentivize adjustments in acreage and trade. The new trade pattern is very different from the current one, showing the important role of trade flows in adapting to climate change. This is confirmed by larger welfare losses from climate change when adjustments in trade flows are constrained versus when they are not.