Given the agricultural sector’s substantial contribution to both GDP and employment in developing economies, climate shocks affecting agricultural productivity have the potential to reshape inter-regional and inter-sectoral labor reallocation, as well as agricultural production. I build and quantify a dynamic spatial general equilibrium model incorporating farmers’ optimal crop choices, household migration, and international trade. The model is quantified for 12 major crops and 60 regions covering 145 countries around the world. This study shows that the general equilibrium effects of labor mobility are nontrivial, and labor reallocation can play a crucial role in mitigating the adverse effects of climate change along with production and trade adjustments.

We build a dynamic multi-region model of climate and economy with emission permit trading among 12 aggregated regions in the world. We solve for the dynamic Nash equilibrium under noncooperation, wherein each region adheres to the emission cap constraints following commitments that were first outlined in the 2015 Paris Agreement and updated in subsequent years. Our model shows that the emission permit price reaches $811 per ton of carbon by 2050. We demonstrate that a regional carbon tax is complementary to the global cap-and-trade system, and the optimal regional carbon tax is equal to the difference between the regional marginal abatement cost and the permit price.