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Understanding the adaptation deficit: why are poor countries more vulnerable to climate events than rich countries?

This paper analyses the link between income and adaptation to climate events theoretically and empirically. The authors postulate that the adaptation deficit is due to two factors: A demand effect, whereby the demand for the good ‘climate security’ increases with income, and an efficiency effect, which works as a spill-over externality on the supply-side: Adaptation productivity in high-income countries is enhanced because of factors like better infrastructure and stronger institutions. Using panel data from the Munich Re natural catastrophe database the authors find evidence for both effects in two climate-related extreme events: tropical cyclones and floods. The demand effect is uniformly strong, but there is considerable variation in adaptation efficiency. The authors identify the countries where inefficiencies are largest. Lower adaptation efficiency is associated in particular with less government spending, an uneven income distribution and bad governance. The paper concludes that international efforts to close the adaptation deficit have to include both inclusive growth policies (which boost adaptation demand) and dedicated adaptation support (which enhances spill-overs), the latter targeted at the countries with the highest adaptation inefficiencies.