Impact of global climate change on international trade

Global climate change affects a region integrated in international trade in two ways.
Changes in the regional climate conditions might affect production, which causes direct losses or benefits for the exposed region and since regions are linked to each other through trade, changes in other regions’ climate conditions may affect their own welfare as well. If agricultural production in sub-Saharan Africa declines, prices for such commodities will also increase in northern economies and worsen their terms of trade – the indirect effects of CC.
Most climate scenarios predict a higher exposure to CC impacts of regions in more southerly latitudes. And since most southern economies are also developing countries, the lack of adaptive capacity makes them even more vulnerable. This suggests that in developed economies of the North indirect effect dominate, whereas in the South the opposite is observed.
The starting point will be an analytically static trade model with two different regions. The regions are distinguished by their factor endowments, their regional climate and adaptive capacity. Regional climate quality depends on the atmospheric carbon concentration which is a public bad, as well as the region’s investment in adaptation, which must be considered as private to the region. Since adaptation can reduce the negative impacts of global climate change and climate variability, regional climate quality is viewed as the difference between the atmospheric stock of carbon and regional adaptation. With this analytical framework we want to examine whether the consideration of international trade and the subsequent indirect effects can provide an incentive to the North to fund adaptation in the South.