If populations don’t move, global warming is likely to have disastrous consequences.
- 44% of the world’s population lives within 150 kilometres of a coastline, so rising sea levels may prove fatal (United Nations 2013).
- Millions of people in the tropics may see their livelihoods destroyed by falling crop yields as climate change pushes temperatures above certain thresholds (Intergovernmental Panel on Climate Change 2007).
Faced with this dismal prospect, policy makers have mainly focused on two strategies: mitigation and adaptation. By ‘mitigation’, we mean trying to slow global warming by reducing carbon emissions through efforts such as the Kyoto Protocol. ‘Adaptation’ means trying to reduce the negative impact of the climate change that will occur, through things like protecting low-lying coastal areas or by using air conditioning.
Learning from previous climatic change
In recent research, we argue that the world has seen climate change before, and how it adapted then – when modern adaptive strategies were not available – may provide valuable lessons for the challenges we face today (Desmet and Rossi-Hansberg 2012):
- During the Medieval Warm Period, roughly spanning the 9th to the 14th centuries, the world experienced temperature rises of up to two degrees celsius.
According to Fagan (2008), this “brought bounty to some areas, but to others, prolonged droughts that shook established societies to their foundation”. For example, northern Europeans and Inuits benefited enormously whereas native Americans and other Mesoamerican societies lost out.
Today’s responses to climate change would not have been much help then. There certainly was no possibility of changing the course of temperature increases, and technologies to mitigate their impact were limited. Instead, as Fagan (2008) argues: “the only protection against such disasters was movement”.
Climate and migration, the historical record
The Medieval Warm Period prompted changes in trade patterns and led to important movements of people:
- During the 12th and 13th centuries – pre-dating Ricardo’s famous example of comparative advantage – England was exporting wine to France, and vineyards were found as far north as southern Norway.
With these warmer temperatures, population density in the Nordic countries increased and the Norsemen ventured out, settling first in Iceland and later in Greenland and even parts of Newfoundland (Fagan 2008).
- Higher temperatures in 13th century Mongolia have also been linked to the rise of Genghis Khan and the vastness of his empire.
- In the 1930s, the US Dust Bowl, caused by a period of severe drought, prompted the displacement of 2.5 million people; without migration, many more would have fallen prey to poverty, malnutrition and worse.
Climate change, trade, and movement of people
Motivated by this view, we argue that the negative economic effects of climate change are likely to stem predominantly from frictions – that is, national borders – that prevent the free movement of people and goods. If there were no such frictions, climate change would not be much of a worry from today’s perspective.
Let us put the climate-linked temperature variation (in the range of four to eight degrees celsius over the next 200 years) into perspective:
- Climate-linked temperature variation is much smaller than the current temperature difference between the equator and the North Pole, which is around 30 degrees celsius.
- As a result, although some places may become too hot to be productive, others are likely to experience productivity increases.
As long as people can move, the impact should be limited.
Of course, problems could still arise if there is no physical space to move to. But, from our analysis, this seem to be a non-issue:
- According to Yale’s Geographically based Economic Data (G-Econ 4.0 2013), in 2005 an astounding 72% of the world’s population lived on just 10% of its land.
In the case of GDP, the corresponding number was an even higher 90%. Thus, even if global warming renders part of the world’s land economically unusable, it is unlikely to lead to big losses in output, because most of the land is unused anyway.
This implies that any substantial losses from climate change must be related to trade or mobility frictions for factors like infrastructure, capital, and, as we emphasise in our research, technology and people.
To quantitatively analyse the cost of climate change, we propose a two-sector spatial growth model of the world, combined with a standard model of climate change, where production causes carbon emissions and global warming. The increase in temperature differs across latitudes, and its productivity impact is greater in agriculture than in manufacturing. After calibrating the model, we compare the impact of climate change under different mobility assumptions.
Start by assuming that there is free trade and free migration. Compared to a situation without climate change, global warming of the magnitude predicted by the IPCC would push agricultural production about 1,000 kilometres north over the next 200 years. Roughly speaking, this is the latitudinal distance between Madrid and Paris or between Mumbai and Delhi.
In more extreme scenarios, the push north could be double in distance. But the overall welfare effect of climate change is negligible. Although agricultural productivity declines in some places, it increases in others. As long as the world can trade and people can move, the impact is minimal.
If anything, when using the benchmark prediction of the IPCC, the welfare impact of climate change may even be slightly positive. It is only in very extreme examples that things could turn disastrous. If even the North Pole were to become too hot, then these margins of adjustment would obviously get exhausted, and welfare would decline precipitously.
We recognise that large-scale migration across countries has never been easy or costless. Suppose we introduce a border at the 45th parallel north – a circle of latitude 45 degrees north of the Earth's equatorial plane – making migration between south and north impossible. This benefits the north, and more so if global warming is more severe. Since higher temperatures provide a productivity boost to northern latitudes, in the absence of migratory restrictions this would attract immigrants from the south, and as a result, wages would fall. But if those immigrants are not allowed in, the north no longer suffers from declining wages. In addition, rising temperatures make the south’s population accumulate at the border, thus lowering trade costs, and providing another boon to the north.
Taking the benchmark prediction of climate change of the IPCC, introducing a border at the 45th parallel north decreases the average utility effect of global warming by 0.3%, compared to free mobility. The distributional impact of global warming is an order of magnitude larger, with the difference between north and south increasing by 3.9 percentage points. In more extreme scenarios of temperature increases, the border increases the negative average utility effect of global warming by a much larger 2.9%, and the difference between north and south widens by more than 11 percentage points.
Rather than introducing a border at the 45th parallel, one could also consider the more dramatic case of no migration at all. That is, take today’s population and do not let anyone move for the next 200 years. If that were to be the case, the welfare differences across latitudes would be exacerbated, with polar regions becoming up to twice as well off as equatorial regions in present value terms. These different counterfactual experiments suggest that the average welfare impact of climate change is small (though surely not negligible), whereas the distributional welfare effects are potentially huge. As a result, migratory pressure is bound to increase tremendously as climate change takes its toll.
Carbon taxes and innovation subsidies
Carbon taxes can have substantial positive effects in this model, with welfare gains between 3% and 5%, an order of magnitude higher than the 0.35% found by Nordhaus (2010). One reason for the greater effect is the presence of externalities. A carbon tax has a relatively smaller impact on high-productivity locations that rely more on technology than on inputs. This leads to greater geographic clustering, implying more innovation and greater welfare. Subsidising innovation can also be attractive, but in contrast to carbon taxes, its effect becomes smaller, the larger the magnitude of global warming. The problem is that we get too much innovation today in locations that will become too hot for production tomorrow. As rising temperatures shift production north, past innovation is rendered useless. In that sense, innovation subsidies may not help mitigate the negative impact of climate change.
The current emphasis on carbon taxes as a way of dealing with global warming therefore seems appropriate. But we should certainly not forget the age-old strategy of ‘movement’ as a way of adapting to climate change. Although you may not yet be planning to migrate to Greenland, the policy debate on climate change should start giving greater importance to finding ways of alleviating migratory and trade restrictions. These frictions are fundamental to our understanding of the economic costs of global warming.
Fagan, B (2008), The Great Warming: Climate Change and the Rise and Fall of Civilizations, New York, Bloomsbury Press.
Desmet, K and E Rossi-Hansberg (2012), “On the Spatial Economic Impact of Global Warming ”, CEPR Discussion Paper 9220.
Geographically based Economic data  (G-Econ) (2013), website, dataset.
Intergovernmental Panel on Climate Change (2000), IPCC Special Report, Emissions Scenarios, IPCC, Geneva, Switzerland.
Nordhaus, W (2010), “Economic Aspects of Global Warming in a Post-Copenhagen Environment”, Proceedings of the National Academy of Sciences of the USA, 107.
United Nations (2013), UN Atlas of the Oceans , website.