Amsalu W. Yalew (Potsdam Institute for Climate Impact Research)
Amsalu W. Yalew, Georg Hirte, Hermann Lotze-Campen, Stefan Tscharaktschiew
Quantifying the economic effects of climate change is a crucial step for planning adaptation in developing countries. This study assesses the economy-wide and regional effects of climate change induced productivity and labor supply shocks to the agriculture sector in Ethiopia. We apply a structural approach, consider different crop yield projections, and add a regionalization to the national CGE results. The study shows, in the worst case scenario, the effects on national GDP may add up to -8%. The effects on regional value-added GDP are uneven and range from -10% to +2.5%. However, cost-free exogenous structural change scenarios, for example, improving labor skills and reducing marketing margins may offset about 20-30% of these general equilibrium effects. Therefore, the ongoing structural transformation in the country may underpin the resilience of the economy to climate change which can be regarded as additional benefits of structural change in Ethiopia. Nevertheless, given the role of the sector in the current economic structure and the potency of the projected biophysical impacts, adaptation in agriculture is imperative. Otherwise, climate change may make rural livelihood unpredictable and strain the country’s economic progress.