Climate-related Agricultural Productivity Losses through a Poverty Lens

TL;DR

This paper examines how climate change-induced food price increases affect poverty and inequality over time using a detailed economic model calibrated with data from 92 developing countries.

Contribution

It introduces a comprehensive model accounting for non-linear consumption responses and general equilibrium effects to analyze climate impacts on poverty and inequality.

Findings

Climate change impacts differ in short-term and long-term.

Higher food prices lead to increased precautionary savings among the poor.

Climate impacts on productivity exacerbate wealth inequality.

Abstract

In this paper, we analyze the long-term distributive impact of climate change through rising food prices. We use a standard incomplete markets model and account for non-linear Engel curves for food consumption. For the calibration of our model, we rely on household data from 92 developing countries, representing 4.5 billion people. The results indicate that the short-term and long-term distributive impact of climate change differs. Including general equilibrium effects change the welfare outcome especially for the poorest quintile. In the presence of idiosyncratic risk, higher food prices increase precautionary savings, which through general equilibrium affect labor income of all agents. Furthermore, this paper studies the impact on inequality for different allocations of productivity losses across sectors. When climate impacts affects total factor productivity in both sectors of the economy, climate impacts increase also wealth inequality.