Distributional Implications of Climate Change in Rural India: A General Equilibrium Approach

Abstract

We develop a general equilibrium framework, based on a specific‐factors trade model, to quantify the medium‐term household welfare impacts of global warming in rural India. Using an hedonic approach grounded in the theory combined with detailed microdata, we estimate that three decades of warming will reduce agricultural productivity in the range of 7%–13%, with the arid northwest of India especially hard hit. Our analysis shows that the proportional welfare cost of climate change is likely to be both modest and evenly distributed across percentiles of the per capita income distribution, but this latter conclusion emerges only when the flexibility of rural wages is taken into account.