Essays on the Spatial Economic Consequences of Global Warming

Abstract

I study the local economic consequences of global warming and the efficiency of environmental policies through the lens of spatial dynamic models, accounting for the most salient adaptation mechanisms and pursuing a fine level of geographical resolution. Chapter 1 assesses the reallocation of workers across markets from global warming by developing a dynamic economic model with the patterns of structural transformation and spatially distinct labor markets facing varying exposure to warming damages on productivity. I collect data from censuses and employ methodologies from the demographic literature to provide novel estimates of worldwide bilateral migration flows. The model, quantified for 6 sectors and 287 countries and subnational units, suggests that although hot regions might reduce the production of agricultural goods and import them from less affected locations, sectoral specialization is mainly driven by the shift in consumption expenditure towards the subsistence goods. Chapter 2, joint with Esteban Rossi-Hansberg, evaluates the local economic consequences of higher temperatures. We propose a dynamic economic assessment model of the world economy with high spatial resolution (1ºx1º) and a number of adaptation mechanisms, including costly trade and migration, local technological innovations and natality rates. We estimate damage functions of temperature on a region's fundamental productivity and amenities. The results show welfare losses as large as 20% in Africa and Latin America but also gains in Siberia, Canada, and Alaska. We find that global warming will increase spatial inequality, since welfare losses across locations are negatively correlated with current real income. Chapter 3, joint with Esteban Rossi-Hansberg, studies local carbon policy to address the impact from climate change. Although the largest welfare costs from global warming are concentrated in the warmest parts of the developing world, adjusting for the local marginal utility of income implies that the Local Social Cost of Carbon (LSCC) peaks in warm high-income regions, like the southern parts of the U.S. and Europe. We then study the effect of the actual carbon reduction pledges in the Paris Agreement and find that, although the distribution of pledges is roughly in line with the LSCC, their magnitude is largely insufficient to achieve its goals.