Climate Change and Poverty Traps: Adopting an Integrated Model Framework

Matthias Leuthard
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Matthias Leuthard: Center of Economic Research, ETH Zurich, Zurichbergstrasse 18, 8092 Zurich, Switzerland

No 25/399, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: This paper develops a tractable North-South framework with overlapping generations and endogenous growth dynamics to study poverty traps in the light of climate change. Global pollution is a negative externality of capital accumulation in both world regions, and climate change causes damages to the stock of physical capital in the more vulnerable South. Non-linearities in global pollution dynamics, in the impact and abatement functions and in the production structure give rise to critical threshold effects, possibly leading to a long-run equilibrium with persistent poverty. Climate policy in the North that aims to reduce global emissions lowers the risk of the South falling into a climate-poverty trap by mitigating climate-induced capital depreciation. This transmission channel highlights the critical role of proactive climate policy in the North in preventing climate-induced poverty traps in the capital-poor South.

Keywords: Climate change; poverty traps; economic development; non-linearities (search for similar items in EconPapers)
JEL-codes: O11 Q54 Q56 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2025-05
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