Economy-wide and international spillovers of the economic impacts of climate change

Estimates of the economic consequences of climate change diverge widely and are influenced by methodological choices. Here, we explore different approaches to quantifying economic damages by leveraging a structural model of the global economy. We decompose macroeconomic outcomes by region, factor, and sector to reveal differences between top-down aggregate productivity shocks and a bottom-up representation of impact channels. While aggregate economic outcomes are comparable, region-specific results differ substantially between approaches at the tails of the distribution, driven by divergent international trade responses. Allowing for economic adaptation in production and trade flows, our findings indicate that international spillovers raise global welfare losses from climate change by 1%–7% relative to the sum of domestic impacts. Overall, our results suggest that a disaggregated representation of climate change impact channels is important for improving the understanding of aggregate economic outcomes and for informing effective adaptation policies that account for international trade spillovers.