Friday, January 8, 2021

Local Sectoral Specialization in a Warming World

This paper quantitatively assesses the world's changing economic geography and sectoral specialization due to global warming. It proposes a two-sector dynamic spatial growth model that incorporates the relation between economic activity, carbon emissions, and temperature. The model is taken to the data at the 1° by 1° resolution for the entire world. Over a 200-year horizon, rising temperatures consistent with emissions under Representative Concentration Pathway 8.5 push people and economic activity northwards to Siberia, Canada, and Scandinavia. Compared to a world without climate change, clusters of agricultural specialization shift from Central Africa, Brazil, and India's Ganges Valley, to Central Asia, parts of China and northern Canada. Equatorial latitudes that lose agriculture specialize more in non-agriculture but, due to their persistently low productivity, lose population. By the year 2200, predicted losses in real GDP and utility are 6% and 15%, respectively. Higher trade costs make adaptation through changes in sectoral specialization more costly, leading to less geographic concentration in agriculture and larger climate-induced migration.

Aggregate patterns. At the aggregate level, Panel (a) of Figure 11 shows that the growth rate of world real GDP per capita is predicted to increase from 2.2% annually in 2000 to 2.8% annually in 2200, further increasing to 3.0% by the year 2400.12 Global warming leads to a loss in the level of world real GDP per capita of around 6% by the year 2200, increasing to around 9% by the year 2400 (Panel (b)). In terms of world utility, Panel (a) shows that its growth rate rises from 2.1% in 2000 to 2.7% in 2200 and 2.9% in 2400. The losses due to global warming are greater than in the case of real GDP per capita: more than 15% by 2200 and above 20% by 2400 (Panel (b)). To understand why losses from global warming are larger for utility than for real income per capita, recall that utility takes into account amenities whereas real GDP per capita does not. As global warming tends to bene t locations at more polar latitudes which on average have worse amenities, rising temperatures have a more negative effect on utility than on income per capita.

by Bruno Conte, Klaus Desmet, Dávid Krisztián Nagy & Esteban Rossi-Hansberg
National Bureau of Economic Research (NBER)
Working Paper 28163; Issue Date: December, 2020

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