The Economics of Global Climate Change



The Economics of Global Climate Change


Global Economy;  Impacts of Global Climatic Change on Activities International Economic

Thesis; Global Climatic Change has an Impact on International Economic Activities.

Change in the climatic changes due to global warming and other human activities have led to immense changes in the production and supply processes. Change in the climatic has altered the pattern that the producers of raw material were used to. This has brought about the factor of unpredictability and opened the door for the producers to hoard goods in order to increase the prices (Fisher, 1994). An increase in the price of raw material increases the cost of production of manufactured goods and ultimately there is an increase in price both at the domestic and international level.


International economic activities are based on economic inter-dependence brought about by efficiency and innovation by citizens of the different countries. Due to an increasing level of technology and increased mobility of factors of production like capital and labor, international trade forms a big part of the general revenue earned by most countries. International trade is made up of globalization of production, production methods, markets, technology and competition (O’Brien, 2000).

Even though the international market is not a new phenomenon in the world as it started several decades ago, it has been on the rise as from the past twenty years to date. However, over the past five years, there has been a steady decline in dependability and predictability in the trade as a result of increase climatic change. The changes have brought out some economic winners and economic losers.


Economic winners are countries who have experienced financial and nonfinancial benefit due to the impact that the changes in climatic change have on global trade. According to Fisher, 1994, the following are some of the characteristics of winners;

  • Increased productivity, this is especially areas that are agricultural dependent and are experiencing optimum rainfall that has led to an increase in output.
  • Increase in resource availability– especially in under-populated areas where there was no full utilization of resources. Especially temperature, an increase in temperature may lead to the discovery of opportunities for instance from the melting of glaciers.
  • The decrease in exposure to hazards, for instance, the occurrence of floods that leads to loss of human life and has damaged. Once this has been reduced, there is stability and the people can be able to engage in production throughout the year without fear.
  • The decrease in expenses– this is especially in the areas that experience snow and the government has to budget for snow removal expenses. Once the expense is not experienced, then the funds can be used to make an investment that can lead to an increase in income and GDP.

The losers are countries that are termed to be experiencing the following;

  • Increase in climatic mortality– this can be as a result of flash floods, increase in drought and famine. This is mostly by countries that on the shoreline or are in an arid and semi-arid area where rainfall stops becoming a occasional phenomenon and becomes a rare phenomenon.
  • Decrease in national income due to a decrease in aggregate supply and aggregate demand. This is as a result of a change in preference and taste of the consumers who are subjective as they try to adapt to the changes in the climatic conditions.

According to Conroy and Glasmeier, 1993, winners are mostly countries in central Africa, Mexico, and Parts of North America. Most of the countries in the Middle East and Sub-Saharan Africa will become the losers. According to Dickens, 1997, close to 10% of the world’s population lives in Sub-Saharan Africa, but due to the increase desert encroachment of their land, only 1% of international investment is directed there annually. While 80% of the world’s merchandise exports come from Central and East Africa, Canada, Japan and parts of the USA.

Even though an analysis of climatic change brings out that there are clear winners and clear losers, one thing that is not put into consideration is the fact that both processes take place simultaneously. Global economic activities do not wait for climatic change for them to take place, they occur at the same time. This is what was termed by O’Brien and Leichenko, 2000, as double exposure to the economy. This means that one country may suffer wins on one process and loses on the other, or vice versa, however when a country experience loses on both fronts, their economy will be highly affected.

Even though climatic changes have effects on the world, it is not in an even manner, same as the globalization of trade. According to the comparative advantage theory, a country should be efficient in the production of a good that will have the lowest opportunity cost. In this case, there is a need for countries that trade to come to a conclusive decision on what one should specialize in producing (Maneschi, 1998). This is determined by the resources that are available to the country, the product effectively maximizes them and allows for the country to produce at the optimum level should be manufactured and exported.

The comparative advantage theory is based on the premise that a country can be able to produce a variety of goods and services; however, it should focus on the production of the products that it can efficiently produce (Maneschi, 1998). In order to determine this, the country has to compare the products it produces and the one with the least opportunity cost can be imported instead. Comparative advantage is applicable because due to the climatic changes, some of the resources required for production are depleted while others are increased. This means the countries have to go back to the drawing board and determine what requires being imported and what requires being produced domestically and exported.


This will bring forth changes in the structure of international economic activities in the following ways;

  • Increase in a rare resource for a country, will decrease its import and decrease trade with the country that was offering it.
  • Increase in raw material will increase foreign investment as is the case of Egypt, where an increase in the amount of water in river Nile has led to increase in the irrigated land and more investors are attracted to invest there.
  • The decrease in the trade between some countries due to the change in the number of factors of inputs that will be available to them. For instance increase in temperature has increased the availability of crude oil in Sub-Saharan countries, shifting global crude oil monopoly from the Middle East to the African continent. Many of the developed countries will fund the extraction of oil in these developing countries (O’Brien, 2000).
  • The exploitation of emerging markets in developing countries in South America, Asia, and Africa, as the countries will be looking for new places to sell their products after their markets dissolve due to change in resource availability.


Conroy, M. E. Glameier, A. K. (1993). Unprecedented Disparities, Unparalleled Adjustment Needs; Losers and Winners of the NAFTA ‘fast track’, Journal of Inter-American American Studies and World Affairs

Dickens, P. (1997). Global Shift: Transforming the World Economy, 3rd Edition, Guilford Press, New York

Fisher, G. Froghberg, K. Parry, (1994). Climate Change and the World Food Supply; Demand and Trade; Who Benefits and who loses? Global Environmental Change Journal, Volume 4

Maneschi, A. (1998). Comparative Advantage in International Trade; A Historical analysis, Colombia Publishers

O’Brien, L. K. Leichenko, M. R. (2000), Double Exposure: Assessing the Impacts of Climate Change Within the Context of Economic Globalization, Department of Geography and Centre for Urban Policy Research, Rutgers University, 33 Livingston Ave., CICERO, University of Oslo Press, Norway



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