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Investing in Climate Adaptation under Trade and Financing Constraints: Balanced Strategies for Food Security
Author:
Chen Chen
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Koralai Kirabaeva https://isni.org/isni/0000000404811396 International Monetary Fund

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Danchen Zhao
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Series:
IMF Working Papers
Volume/Issue:
Volume 2024: Issue 184
Language:
English
Publication Date:
23 Aug 2024
DOI:
https://doi.org/10.5089/9798400289132.001
ISBN:
9798400289132
ISSN:
1018-5941
Pages:
31
Keywords:
agriculture; investment; adaptation; trade; climate change; adaptation investment; trade openness; trade cost; development investment; trade fragmentation; Agricultural sector; Food security; Agricultural production; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Financially constrained governments, particularly in emerging and developing economies, tend to face a fiscal trade-off between adapting to climate change impacts and pursuing broader development goals. This trade-off is especially relevant in the agriculture sector, where investing in adaptation is critical to ensure food security amidst climate change. International trade can help alleviate this challenge and reduce adaptation investment needs by offsetting agricultural production shortages. However, in the presence of trade fragmentation, the adaptive role of trade diminishes, exacerbating food insecurity and increasing investment needs for adaptation. In this paper, we present a model to guide policymakers in deciding on the cost-efficient balance between investing in adaptation in the agricultural sector versus in broader development under financing and trade constraints. We apply the model to Ghana, Egypt, and Brazil, to examine the adaptation-development trade-off and highlight factors that would potentially lower adaptation investment needs. These factors include trade openness, higher agricultural productivity and efficiency of adaptation spending, and reduced labor market distortions. The key takeaways from the model applications suggest that (i) promoting trade openness and accessing concessional finance for adaptation help tackle climate challenges and ensure food security in lower-income countries; and (ii) domestic structural reforms are necessary to facilitate adaptation investments and reduce investment needs, by improving labor market flexibility, adaptation efficiency, and agriculture productivity.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund