Economy-wide Effects of Climate Change in Ethiopia

We assessed the economy-wide impacts of climate change on Ethiopian economy. We coupled global gridded crop model results with CGE model. The results of two crop simulation models were fed into CGE model as shocks to total factor productivity in grain and livestock producing agricultural activities in Ethiopia. We found that the macroeconomic, sectoral, and households’ welfare effects are non-negligible. Small urban residents will relatively burnt the welfare burden compared to rural households (which produce and consume majority of their produce) and households in big urban area (which may have higher access to imported food, and the share of food expenditure is low). Impacts on overall GDP may reach up to 7%. Exports will decline. The import composition moves from non-agricultural to agricultural commodities. Agricultural activities GDP is hit hard by climate change compared to industrial and service activities. Within agricultural activities, grain and livestock activities on which the shock was introduced are those highly affected. There are also impacts on agricultural activities even if climate change impacts were not imposed directly. This calls for proactive adaptation in agriculture in the country. We pursued Structural approach which is an interdisciplinary approach, to assess the economy-wide impacts of climate change. First, the crop yield projections simulated by two Global Gridded Crop Models (GGCMs) were used to obtain the changes in yields overtime. Then, these yields changes, were imposed as shocks to total factor productivity parameters of agricultural activities in the static CGE model. The CGE results were analyzed at macroeconomic (GDP, Exports, Imports, Government Savings), Sectoral (Agricultural, Industrial and Services output), and households (Rural and Urban) level. The preliminary results show that the macroeconomic, sectoral output, and households’ welfare effects of climate change in Ethiopia are non-negligible. The impacts on GDP may reach up to 7%. The impacts on households’ welfare varies between -2& to -11% depending on the model and location of households. Imports of non-agricultural goods declines will that of agriculture may increase. As expected agriculture will bear the highest burden.