Climate change and total factor productivity in the Tanzanian economy

Abstract

The economic impacts of climate-change-induced adjustments on the performance of the Tanzanian economy are analysed, using a countrywide computable general equilibrium (CGE) model. The effect of overall climate change on agricultural productivity (modelled as reduced land productivity) is projected to be relatively limited until about 2030, thereafter becoming worse. The simulation results indicate that despite the projected reduction in agricultural productivity, the negative impacts can potentially be quite limited. This is because the timescales involved, as well as the low starting point of the economy, leave ample room for factor substitutability and increased overall productivity. This indicates that policies that give farmers the opportunity to invest in autonomous climate adaptation, as well as those that improve the overall performance of the economy, can be as important in reducing the impacts of climate change in the economy as direct government policies for adaptation.

L'impact économique des ajustements dus au changement climatique sur la performance de l’économie tanzanienne est examiné, à l'aide d'un modèle d’équilibre général calculable à l’échelle du pays. Selon les projections, l'effet du changement climatique mondial sur la productivité agricole (modélisé par la réduction de la productivité des terres) devrait être relativement limité jusqu'environ 2030 pour ensuite s'aggraver. Les résultats des simulations indiquent que, malgré la réduction prévue de la productivité agricole, les effets négatifs peuvent potentiellement être assez restreints. Ceci s'explique par les échelles de temps concernées et le point de départ faible de l’économie laissant une grande place pour la substituabilité des facteurs et l'augmentation globale de la productivité. Ceci indique que les politiques donnant aux agriculteurs la possibilité d'investir de manière autonome dans l'adaptation au climat, ainsi que celles qui améliorent la performance globale de l’économie, peuvent être tout aussi importantes pour l'atténuation des impacts du changement climatique dans l’économie que les politiques gouvernementales directes à l'adaptation.

Keywords:

• adaptation policy
• Africa
• economic development
• economic models
• Tanzania

Mots clés:

• Afrique
• développement économique
• modèles économiques
• politique d'adaptation
• Tanzanie

Acknowledgements

We would like to thank Razack Lokina and John Mduma of the Department of Economics at the University of Dar-es-Salaam, participants in the Economics of Climate Change Roundtable Meeting in Dar-es-Salaam in March 2008, and three anonymous reviewers for constructive comments and suggestions on earlier versions of this work. Financial support from the Swedish International Development Cooperation Agency (Sida) and from the International Institute for Environment and Development (IIED) is gratefully acknowledged. The usual disclaimers apply.

Notes

This adjustment was based on discussions with Tanzanian economists who stated that the 70% assumption in the Tanzanian SAM was unrealistic. Because the impact of climate change is modelled as reduced land productivity, attributing more of the production to land (as we do) increases the importance of climate change for the modelling outcome. Thus, using the original 70% assumption would lead to smaller projected impacts of climate change.

A series of sensitivity analyses in which one or several of the parameters in the model are changed was also run (results available from the authors on request). The qualitative results are the same as in the reported scenarios.