Climate Adaptation: Issue 2

Abstract

In this review, we summarise the literature on weather and climate adaptation in developing countries. First, we document the effects of climate change and extreme events on economic outcomes. Climate change and weather shocks negatively impact households, firms, and countries across a range of important outcomes such as income and mortality. These effects are usually quite large in magnitude, and can transmit across space via supply relationships, credit markets, or migration, and persist across time, including in some instances for decades. Next, we review the evidence on the effectiveness and efficiency of various adaptation approaches. We discuss adaptation through financial products, new technologies, directed innovation, mobility, and government policies. The literature indicates that while households, farmers, and firms undertake a variety of adaptation measures, these are seldom able to mitigate the impacts of climate completely, indicating that policies to facilitate adaptation will likely have large welfare gains. As developing countries begin to ramp up efforts to facilitate adaptation and receive international funding for climate change adaptation, understanding how these can be best allocated to high-impact regions and policies should form a crucial set of questions for future work.

Climate Adaptation: Summary

Developing countries face the joint challenges of reducing poverty and adapting to a changing climate, while in some cases also needing to reduce their greenhouse gas emissions. Currently, 60% of the world’s population lives in a place where a hotter year causes lower GDP growth, and by 2100, this will reach 75% (Acevedo et al. 2020). Therefore, even if the ambitious global target of limiting warming to two degrees or below is reached, there will be a substantial need to allocate resources towards adaptation, and balance the need to increase resilience to climate change with the need for economic growth.

Developing countries are most vulnerable to climate change for a range of reasons. These include a greater impact of temperature on output (Acevedo et al. 2020, Burke et al. 2015), long coastlines, which increase vulnerability to certain extreme events (Balboni 2025), and lower incomes, which can impact resilience and the ability to undertake adaptive investments. Furthermore, on average, mean temperatures are higher in developing countries, implying that further warming may increase this vulnerability. Finally, developing countries have lower access to social safety nets, further increasing households’ vulnerability in the face of climate shocks (Hanna and Oliva 2016).

This review summarises the key takeaways from economic research on climate adaptation in developing countries, focusing on three aspects in particular. The first is research that quantifies vulnerabilities to weather and climate, which focuses on the cost of weather and climate shocks on important economic outcomes. This work shows how climate change and weather shocks impact households, firms, and countries negatively across a range of first-order outcomes such as income, conflict, human capital formation, productivity, food security, and mortality.

The second is research that measures how households, the private sector, and governments adapt to climate change. This occurs through individual actions, such as adopting new technologies, migration and job-switching, and directed innovation, and also through government policies including physical infrastructure, market design, and safety nets. While households, farmers, and firms undertake a variety of adaptation measures, they are seldom able to mitigate the impacts of climate completely, indicating that policies to facilitate adaptation will likely have large welfare gains. But while socio-economic policies can provide safety nets and minimise frictions to adaptation, political economy concerns may also shift the focus away from climate resilience. As developing countries begin to ramp up efforts to facilitate adaptation and receive international climate financing for adaptation, understanding how these can best be allocated to high-impact regions and policies forms a crucial set of questions for future research.

The third summarises the growing evidence base on how shocks transmit through economies, and, crucially, across different economies, by examining how different regions are linked, and using general equilibrium approaches to study climate change adaptation. The effects of climate shocks may ripple across the global economy along a range of channels which have been investigated in recent empirical studies. These effects are usually quite large and can transmit across space via supply chains, credit markets, or migration, and persist across time, including in some instances for decades. So accounting for these responses has meaningful implications for our estimates of overall climate change damages, and our understanding of adaptation requirements and mechanisms.

Since the previous version of this review, the literature on climate adaptation in developing countries has seen significant progress in several areas. This includes new methodological approaches using time-series variation in global temperatures to quantify macroeconomic damages from climate change, and growing evidence examining the effects of socioeconomic policies – including social protection programmes, physical and health infrastructures, weather forecasts, and market-based mechanisms – in facilitating adaptation.

Climate Adaptation: Presentation of key takeaways from Issue 1

For our launch event, Namrata Kala joined us to present the key takeaways from this VoxDevLit, highlighting policy relevant results from recent economic research on climate adaptation.

For full reference list see the end of the conclusion chapter.