Climate change and the Ethiopian economy: a CGE analysis

The paper analyzes the economic impacts of climate change-induced fluctuations on the performance of Ethiopia's agriculture, using a country wide computable general equilibrium (CGE) model. We model the impacts on agriculture using a Ricardian model, where current agricultural production is modelled as a function of temperature and precipitation, among other things, and where future agriculture is assumed to follow the same climate function. The effect of overall climate change is projected to be relatively benign until approximately 2030, but will become considerably worse thereafter. Our simulation results indicate that, over a 50-year period, the projected reduction in agricultural productivity may lead to reductions in average income of some 20 per cent compared with the outcome that would have prevailed in the absence of climate change. This indicates that adaptation policies - both government planned and those that ease autonomous adaptation by farmers - will be crucial for Ethiopia's future development.