International Economics

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Browsing International Economics by Author "Alemayhu, Geda (PhD)"

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    Macroeconomic Consequences of Climate Change: With a Focus of the Impacts on International Trade Flows for Ethiopia
    (2018-06) Hermela, Wondwossen; Alemayhu, Geda (PhD)
    This paper puts emphases on the analysis of international trade consequences of climate change in Ethiopia. It does so by first understanding impacts of climate damage on agricultural total factor productivity, hence, by estimating the indirect economic impacts resulting from changes in endowments and production. The study used a time series econometric analysis to determine the counterfactual impact of climate change on agricultural total productivity. Then the econometrics estimate was mapped to a dynamic computable general equilibrium model using the updated 2010 SAM data developed by EDRI. The modelling analysis presents a plausible scenario which is indicative of the international trade consequences of climate damages. The results estimated that with the inclusion of climate change, economic performance of the country declines relative to the baseline scenario where no climate damages exist. Exports contracts more than imports and GDP, mainly due to the larger impact climate change has on the main export goods of Ethiopia. Production costs increased resulting in an upward shift of produced goods which leads to an increase of product prices in the international market. The rise in the prices of goods in the international market will put an adverse pressure on Ethiopia’s competitiveness. The important caveat to remember is that this study used one plausible scenario and baseline, hence, the results are more indicative of the impacts of climate change rather than firm predictions. The impact of climate change on chosen agricultural products are discussed in this paper, which will shed light on how Ethiopia’s competitive advantage in the international market will be impacted. However, further studies are suggested which will input the economic consequences of climate change relative to competing countries. Thus, comparative advantage requires extensive data on the impact of climate change not only on the domestic economy but also the intensity of impacts on competing countries. It is suggested that international trade policy decisions should take into account the trade consequences of climate change. Hence, by being conscious of trade consequences of climate change, strong and aligned climate and trade policies can be design possibly avoiding the worst climate damages at least cost.