Climate change and comparative advantage: An assessment through theoretical models
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2023-07-10
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en
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Climate change has various effects on economic factors, which are unequally distributed across different regions on earth. Through its effects on comparative advantage, we can analyze how sector specializations and trade patterns are affected by climate change. To this extent, we investigate the two basic models for comparative advantage: the Ricardian model of trade and the Heckscher-Ohlin model, which will be extended to eight different models. By adding possibilities for multiple factors, goods and countries, differences in technologies and non-homothetic preferences, we obtain a broad range of models in which we investigate how climate change effects will alter comparative advantages. These effects can depend on technologies, endowments and wealth of nations. We apply the results of existing literature on climate change effects on relevant determinants to make predictions for future comparative advantage, where we generally find a tendency of agricultural comparative advantage to northern regions, while manufacturing industries become more appealing in the global south. Moreover, the framework of models provides a manual which can be used to predict comparative advantage movements due to climate change effects in specific cases.
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Faculteit der Managementwetenschappen