Ethiopia's growth prospects in a changing climate: A stochastic general equilibrium approach

Abstract

This study develops a stochastic economy-wide framework for analyzing economic impacts from climate change and potential adaptation policies. For the stochastic analysis, particular attention is paid to the development of a prior subjective distribution of future climate outcomes. The approach is applied to Ethiopia. The results highlight the importance of cumulative processes and rates of growth. In particular, if climate change affects the rate of technical change and the rate of accumulation of capital, the implications become significant over time. Furthermore, analysis of the variability of the components of GDP indicates that aggregate consumption always has a higher coefficient of variation than the other macro aggregates. The burden of adjustment appears to fall more heavily on consumers. Poor consumers are likely to experience increased vulnerability.