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U.S. Interstate Trade Will Mitigate the Negative Impact of Climate Change on Crop Profit

Sandy Dall'Erba, Zhangliang Chen and Noé J. Nava

American Journal of Agricultural Economics, 2021, vol. 103, issue 5, 1720-1741

Abstract: According to the current Intergovernmental Panel of Climate Change report, climate change will increase the probability of occurrence of droughts in some areas. Recent contributions at the international level indicate that trade is expected to act as an efficient tool to mitigate the adverse effect of future climate conditions on agriculture. However, no contribution has focused on the similar capacity of trade within any country yet. The U.S. is an obvious choice given that many climate impact studies focus on its agriculture and around 90% of the U.S. crop trade is domestic. Combining a recent state‐to‐state trade flow dataset with detailed drought records at a fine spatial and temporal resolution, this paper highlights first that trade increases as the destination state experiences more drought and inversely in the origin state. As a result, crop growers' profits depend on both local and trade partners' weather conditions. Projections based on future weather data convert the crop grower's expected loss without trade into expected profit. As such, this paper challenges the estimates of the current climate impact literature and concludes that trade is expected to act as a $14.5 billion mitigation tool in the near future.

Date: 2021
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Handle: RePEc:wly:ajagec:v:103:y:2021:i:5:p:1720-1741