DP9220 On the Spatial Economic Impact of Global Warming

Author(s): Klaus Desmet, Esteban Rossi-Hansberg
Publication Date: November 2012
Keyword(s): carbon, climate change, growth, international and regional trade, migration, mobility frictions, regional economics, space
JEL(s):
Programme Areas: International Trade and Regional Economics
Link to this Page: http://www.cepr.org/pubs/dps/DP9220

We propose a dynamic spatial theory to analyze the geographic impact of climate change. Agricultural and manufacturing firms locate on a hemisphere. Trade across locations is costly, firms innovate, and technology diffuses over space. Energy used in production leads to emissions that contribute to the global stock of carbon in the atmosphere, which affects temperature. The rise in temperature differs across latitudes and sectors. We calibrate the model to analyze how climate change affects the spatial distribution of economic activity, trade, migration, growth, and welfare. We assess quantitatively the impact of migration and trade restrictions, energy taxes, and innovation subsidies.