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Climate change is shrinking the window for development
Research shows that climate change will hurt productivity in low-income countries, making their economic development even harder.
Low-income countries will be hardest hit from climate change. Relative to the rest of the world, they will face more droughts, more storms and more extreme heat. In fact, these effects are already being felt.
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It’s a brutal twist of fate that those countries most in need of climate adaptation are those which are least able to pay for it (and of course those least responsible). Recognising this injustice, high-income countries in 2009 committed to providing $100bn per year in climate finance to low-income countries, a commitment that has consistently not been met. Countries are now negotiating a new commitment that will start from 2025. Yet even a substantial increase in these financial flows will amount to only a fraction of the estimated $6 trillion needed by 2030.
Low-income countries will realistically need to fund a substantial part of their own climate adaptation. To do that properly, they need to become high-income countries. The sheer scale of resources needed is simply beyond the current capabilities of low-income countries. Only rapid economic growth can change this.
It’s cruelly ironic then that climate change is making growth increasingly difficult for low-income countries, partly through its effect on productivity. That climate change dampens agricultural productivity is intuitive. Extreme weather events destroy crops, lowering average yields. They also make farming riskier, disincentivising investment. Low-income countries face a triple whammy of woe. They are more likely to experience extreme weather events, they are less able to mitigate against the effects these events have, and a larger share of their economies is concentrated in agriculture.
While the impact on agricultural productivity is well known, the effects of climate change may spread into other sectors. Research from Ishan Nath in 2021, then of Princeton University, finds that extreme whether also has a disproportionately negative effect on manufacturing productivity in low-income countries.
His analysis suggests one extra day of extreme weather in a low-income country can reduce the average worker’s annual output by 0.4%. That might not sound like a huge amount, but climate change projections suggest that some parts of sub-Saharan Africa will experience 100 extra extreme weather days per year by 2080. Those 0.4 percents can quickly start to add up.
Nath estimates that the effects on manufacturing productivity in high-income countries like the US are minimal. Rich countries manage extreme weather by spending more on energy during extreme whether days – air conditioning for hot days, heating for cold days.
This obviously poses a big problem for low-income countries’ development. Growing manufacturing exports has been a tried and tested route to economic growth. But if Nath’s research is correct, climate change will make this more difficult by rendering their manufacturing exports less internationally competitive.
Incidentally, because the negative productivity impact of climate change on manufacturing is lower than for agriculture, these countries should, if we make a few assumptions, shift their domestic economy from agriculture to manufacturing, and import more of their food from countries less affected by climate change. But these assumptions matter and Nath’s work suggests this isn’t what will happen in practise.
To understand why, we need to introduce what is known as the “food problem”. Consider a country in which lots of people only just manage to feed themselves. Now suppose that country suffers a drop in agricultural productivity, which feeds through to a drop in total food production. People need food to survive, it’s not a luxury we can do without. So, countries either respond by importing more food or by shifting more people to work in agriculture to prop up overall production.
Using some fancy maths, Nath shows that the food problem will have the latter effect in most low-income countries, mainly because trade barriers make it harder for these countries to import food than to shift more people into agriculture. This poses another big problem for low-income countries’ economies: it traps them in the early stages of development. For countries to become rich, structural transformation needs to happen, which means countries must shift their economies from agriculture to industry. Again, climate change will make it much harder for low-income countries to do that.
The immediate solution is clear, reduce trade barriers and make it easier to import food. As Nath points out, the “average country in Sub-Saharan Africa requires 9 documents and over $2700 in fees for customs clearance, document processing, customs brokerage, terminal handling, and inland transport to import a 20-foot container of goods, exclusive of tariffs and unofficial payments”. Reducing these barriers will be important.
But it’s hard to escape the sense that there are very few good options here. The volatility in international food prices since Russia invaded Ukraine has forced countries to reassess the risks of being reliant on foreign countries for food. And, in any case, the reward for importing more food would simply be for these countries to shift into manufacturing, a sector in which climate change makes them – as we discussed earlier – increasingly uncompetitive internationally.
Whether it is through agriculture or manufacturing, research suggests climate change will tip the playing field even further away from low-income countries. Economic growth will become more and more difficult to achieve as the 21st century progresses. The window for development is closing. We need a big push for growth in low-income countries immediately. This is hard, but Nath’s research shows it’s only going to get harder – and more expensive.
Tough choices are inevitable, and priorities must be established. Sub-Saharan Africa’s contribution to global emissions is very low. Climate finance is important, but what these countries need above all else is growth, and fast. Otherwise, climate change will produce a world even more economically divided than it already is. As our atmosphere continues to warm, growth should be the top priority for low-income countries everywhere.