APEC Seminar: Geoffrey Barrows-Quantifying Climate Damages When Regions Trade: A Structural Gravity Approach

This paper presents a method for estimating treatment effects of local climate shocks when regions trade with each other. Because trade creates spillovers, comparing the change in outcomes of regions exposed to shocks with other regions leads to a biased estimate of treatment effect. 

We model these between-region spillovers using standard assumptions from international trade theory, and develop a model-consistent strategy for estimating key parameters and deriving counterfactuals. We use our estimation strategy to revisit the literature on the impact of climate change on gross output. 

We find that accounting for trade spillovers yields substantially larger climate damage projections.