Climate change and the global economy

In the third of a series of four articles, Keith Wade and Marcus Jennings discuss how climate change will affect developed and developing countries differently.

The effects of climate change will not be uniformly distributed across the globe and there are likely to be winners and losers as the planet warms.
Applying a broad brush to climate effects, developing countries are more likely to disproportionately experience the negative effects of global warming.

Not only do many developing countries have naturally warmer climates than those in the developed world, but they also rely more heavily on climate-sensitive sectors such as agriculture, forestry, and tourism.

As temperatures rise further, regions such as Africa will face declining crop yields and will struggle to produce sufficient food for domestic consumption, whilst their major exports will likely fall in volume.

This effect will be made worse for these regions if developed countries are able to offset the fall in agricultural output with new sources, potentially from their own domestic economies as their land becomes more suitable for growing crops.

Developing countries may also be less likely to create drought-resistant harvests given the lack of research funding.

The increased frequency and severity of extreme weather will weigh on government budgets.

The aftermath of natural disasters often falls on authorities who are forced to spend vast amounts on clear-up operations and healthcare costs that come with experiencing extreme weather.

Revenue reductions may also be experienced by countries heavily dependent on tourism or on selling fishing rights, for example, .1

The effects on the developing world are two-fold.
• As developed countries face an increasing strain on domestic budgets, fewer resources in the form of aid and economic development funds will flow to developing countries.
• The governments of these nations will be forced to channel resources away from productive and growth-enhancing projects towards countering the costs of extreme weather.

Such effects will damage near-term growth prospects. Furthermore, developing countries are likely to have less capacity to rebuild.
The time required to recover from natural disasters will be prolonged and if longer than the frequency in which such disasters occur, many developing economies could remain in a constant state of reconstruction.

Highly vulnerable regions in the emerging world include Sub-Saharan Africa and South and Southeast Asia, according to the World Bank.
In South Asia, cities such as Kolkata and Mumbai will face increased flooding, warming temperatures, and intense cyclones.

Loss of snowmelt from the Himalayas will also reduce the flow of water into the Indus Ganges and Brahmaputra basins.

Meanwhile, in South East Asia, Vietnam’s Mekong Delta, which produces most of the rice, is especially vulnerable to rising sea levels.

For Sub-Saharan Africa, food security will be a major challenge due to droughts and shifts in rainfall.

Many developing nations are situated in low latitude countries and it is estimated that 80% of the damage from climate change may be concentrated in these areas.

In contrast, northerly regions such as Canada, Russia, and Scandinavia, may enjoy a net benefit from modest levels of warming4.

Higher agricultural yields, lower heating requirements, and lower winter mortality rates are a handful of economic benefits climate change may bring, although these benefits may diminish as warming continues.


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