Working Paper: NBER ID: w25447
Authors: Jonathan I. Dingel; Kyle C. Meng; Solomon M. Hsiang
Abstract: Global phenomena, such as climate change, often have local impacts that are spatially correlated. We show that greater spatial correlation of productivities can increase international inequality by increasing the correlation between a country’s productivity and its gains from trade. We confirm this prediction using a half-century of exogenous variation in the spatial correlation of agricultural productivities induced by a global climatic phenomenon. We introduce this general-equilibrium effect into projections of climate-change impacts that typically omit spatial linkages and therefore do not account for the global scope of climate change. We project greater international inequality, with higher welfare losses across Africa.
Keywords: Spatial correlation; Trade; Inequality; Climate change
JEL Codes: F11; F14; F18; O13; Q17; Q54; Q56
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| greater spatial correlation of productivities (R12) | increases international inequality (F63) |
| greater spatial correlation of productivities (R12) | enhances the correlation between a country's productivity and its gains from trade (F14) |
| increasing the cross-sectional spatial correlation of cereal productivities by one standard deviation (C21) | 2% increase in the inequality of welfare attributable to cereal consumption (F62) |