The poverty impact of climate change in Mexico

This paper examines the effects of climate change on poverty through the relationship between indicators of climate change (temperature and rainfall change) and municipal level GDP, and subsequently between GDP and poverty. Our evidence suggests that climate change could have a negative impact on poverty by 2030. We propose a two-stage least squares regression (2SLS) where we first regress temperature and rainfall (along with geographic controls and state and year fixed effects) on municipal GDP per capita for 2000 and 2005, and the resulting GDP per capita is used in a second equation to estimate municipal poverty on the same years. We then incorporate projections of temperature and rainfall changes by 2030 into the estimated climate-GDP coefficients to assess the effects of climate change in economic activity and how this in turn will influence poverty. At the same time, we account for the potential adaptive capacity of municipalities through higher population densities and economic growth. Both would reduce poverty by 31.72 percentage points between 2005-2030 (from 49.4% in 2005 to 17.68% in 2030) with changing climate. However, poverty could have been reduced up to 34.15 percentage points over the same period (from 49.4% in 2005 to 15.25% in 2030) had there been no climate change. This suggests that climate change slows down the pace of poverty reduction. An alternative reading is that poverty is expected to increase from 15.25% (without climate change) to 17.68% (with climate change) in 2030. Given the existing population projections for 2030, this represents 2,902,868 people remaining in poverty as a result of climate change.