Can Trade Openness Reduce the Impact of Temperature Shocks on Productivity? An Empirical Assessment

As climate change progresses and global cooperation on mitigation efforts remains limited, the need to understand potential channels for adapting to the impacts of climate change becomes increasingly important.

A potential channel for adaptation to climate change is openness to international trade; this hypothesis is based on the idea the climate change will have heterogenous impacts on countries around the world and will cause countries to lose their comparative advantage in some products and sectors but gain comparative advantage in others. Openness to international trade allows producers to access larger markets, potentially enabling production to shift according to changes in comparative advantage and thereby softening the impact of climate change on productivity.

However, we have limited empirical evidence on whether trade openness does indeed reduce the impact of temperature shocks on productivity. Using a reduced-form model of economic growth, this paper helps to address this gap by testing whether historically trade openness has lessened the impact of temperature shocks on productivity. To deal with potential endogeneity concerns, I follow approaches from the international trade literature to construct an instrument for trade openness. The results of this study can provide insights into potential role of trade policy in adaptation to climate change.

About Leanne Cass

Leanne Cass is an environmental economist based at the Grantham Research Institute at LSE, and is also a member of the PRINZ Project. Her research interests include the interaction between climate change and international trade, avenues towards reduced meat consumption, and the role of green skills and jobs for an equitable transition to Net Zero. She has a PhD in Environmental Economics from LSE, an MSc in Economics from the University of Warwick, and a BA from the University of Ottawa.