Loosely defined, a climate shock is a deviation from typical regional climate conditions that often results in unfavorable conditions. From floods, droughts and cyclones to hurricanes and tsunamis, these episodes affect livelihoods in many ways. They wipe out crops, reduce opportunities for employment, ratchet up food prices and destroy property.
For wealthy households shocks can be managed by drawing upon insurance and savings, or by trading in assets. Put differently, rich countries are able to protect their current consumption without running down their productivity or eroding their human capabilities.
The poor have fewer options and thus face greater risks. Until recently however, an economic account of poor countries failed to capture the threats brought forth by severe climate episodes and thus, did not provide a full picture of how poor countries develop or degrade. According to the 2008 Human Development Report, “…the scale of the potential human development reversals that climate change will bring has been heavily underestimated.”
In light of these events, a new 2010 paper from Ben Jones (Kellogg School of Management) and Ben Olken (MIT Dept of Economics) is particularly worthwhile. The two researchers use international trade data to examine the effects of climate shocks on economic activity. Specifically, they gather data on annual growth rates of a country’s exports, in a particular product category, and compare this with the country’s weather in that year.
The findings are dismal:
“We find that a poor country being 1 degree Celsius warmer in a given year reduces the growth rate of that country’s exports by between 2.0 and 5.7 percentage points, with no detectable effects in rich countries. We find negative effects of temperature on exports of both agricultural products and light manufacturing products, with little apparent effects on heavy industry or raw materials. The results confirm large negative effects of temperature on poor countries’ economies and suggest that temperature affects a much wider range of economic activity than conventionally thought.”
At it’s core, human and economic development is about freedom of choice. But the risks that emerge from climate shocks erode that choice and force people in to undesirable trade-off scenarios. In poor countries, these trade-offs often reinforce inequalities and introduce a downward spiral of further disadvantage and foregone opportunity.
Using sophisticated quantitative studies, economists and policy makers are beginning to see that climate shocks have the potential to make poor countries more poor.
So while it is true that the entire world faces risks associated with climate shocks, the degree to which each country is vulnerable is something totally different.
Image: Ajit Solanki/Associated Press
