The Economic Effects of Climate Change in Dynamic Spatial Equilibrium

Ivan Rudik, Gary Lyn, Weiliang Tan and Ariel Ortiz-Bobea

No 333486, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: We develop a dynamic-spatial equilibrium model to quantify the economic effects of climate change with a focus on the United States. We find that climate change reduces US welfare by 4% and global welfare by over 20%. Market-based adaptation through trade and labor reallocation increases US welfare, but with substantial spatial heterogeneity. Adaptation through labor reallocation and trade are complementary: together they boost welfare by 50% more than their individual effects. We additionally develop a new dynamic envelope theorem method for measuring welfare impacts in reduced form and to validate our quantitative model. We find that welfare distributions from our two approaches are consistent, indicating that our quantitative model captures the first-order factors for measuring the distributional impacts of climate change. The level and distribution of the economic impacts of climate change depends the sectoral and spatial structure of the economy, and the extent to which different markets can adapt.

Keywords: Environmental Economics and Policy; International Relations/Trade (search for similar items in EconPapers)
Pages: 83
Date: 2022
New Economics Papers: this item is included in nep-agr, nep-dge, nep-env, nep-geo and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:pugtwp:333486

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