The impact of climate change on international trade: A gravity model estimation

Abstract

AbstractThe aim of this article is to analyse the impact of climate change on bilateral trade flows. To this end, we estimate a theory‐grounded gravity model using bilateral trade flows on a sample of 67 countries over the period from 1986 to 2016. We use temperatures and extreme weather events (and their consequences) as indicators of climate change. In general, we find that international trade flows are less affected by the evolution of temperatures than domestic ones, while the opposite occurs with extreme weather events. However, there is a clear heterogeneity across countries and types of events. In particular, the results suggest that biological events, such as (epidemics and insect infestation), extreme temperatures, storms and landslides have a negative impact on international flows relative to internal ones. Interestingly, the influence of China and Japan on the global result is decisive, especially for storms in the first case and extreme temperatures in the second. Finally, our General Equilibrium estimations suggest a more detrimental impact of insect infestation and extreme temperatures on welfare than the rest of events.