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International trade and the adaptation to climate change and variability

  • Stephan, Gunter
  • Schenker, Oliver

This paper has three messages mainly, which are observed in a simple model of climate change, international trade and regional adaptation. First, trade can be viewed as a kind of adaptation to climate change and variability, as trade can help to reduce direct impacts of global climate change on a region's welfare. In particular, the less affected and the richer nations are, the more they can profit from moderating the impacts of global climate change through trade. Second, if regions are rich enough to adapt optimally to climate change, the resulting allocation of adaptation measures is Pareto-efficient. In this case funding of adaptation, which is an element of international climate policy, does not make sense from an economic perspective. Third, since the regions of the South typically lack the resources for adapting optimally to climate change, because of terms of trade effects, it might be in the selfinterest of the industrialized nations to fund adaptation in the developing part of the world. However, providing financial assistance for adaptation can be Pareto-improving only, if the benefits of funding, i.e., damages, which are moderated through adaptation, are big enough, and hence, if the recipient's own expenditure for adaptation is low. If not, the paradoxical effect of recipient immiserization through tied transfers can occur.

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Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 12-008.

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Date of creation: 2012
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Handle: RePEc:zbw:zewdip:12008
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  1. Roxana Julia & Faye Duchin, 2005. "World Trade as the Adjustment Mechanism of Agriculture to Climate Change," Rensselaer Working Papers in Economics 0507, Rensselaer Polytechnic Institute, Department of Economics.
  2. Bhagwati, Jagdish N & Brecher, Richard A & Hatta, Tatsuo, 1983. "The Generalized Theory of Transfers and Welfare: Bilateral Transfers in a Multilateral World," American Economic Review, American Economic Association, vol. 73(4), pages 606-18, September.
  3. Brian R. Copeland & M. Scott Taylor, 2000. "Free Trade and Global Warming: A Trade Theory View of the Kyoto Protocol," NBER Working Papers 7657, National Bureau of Economic Research, Inc.
  4. Udo Ebert & Heinz Welsch, 2011. "Adaptation and Mitigation in Global Pollution Problems: Economic Impacts of Productivity, Sensitivity and Adaptive Capacity," Working Papers V-332-11, University of Oldenburg, Department of Economics, revised Feb 2011.
  5. Mendelsohn, Robert & Dinar, Ariel & Williams, Larry, 2006. "The distributional impact of climate change on rich and poor countries," Environment and Development Economics, Cambridge University Press, vol. 11(02), pages 159-178, April.
  6. Linden, Henry R., 2007. "Alarmist Misrepresentations of the Findings of the Latest Scientific Assessment Report of the Intergovernmental Panel on Climate Change," The Electricity Journal, Elsevier, vol. 20(7), pages 38-46.
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