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Climate Change, Agriculture and Trade Policy:Cge CLIMATE CHANGE, AGRICULTURE AND TRADE POLICY: CGE ANALYSES AT REGIONAL, NATIONAL AND GLOBAL LEVEL A THESIS SUBMITTED TO THE GRADUATE SCHOOL OF SOCIAL SCIENCES OF MIDDLE EAST TECHNICAL UNIVERSITY BY HASAN DUDU IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY IN THE DEPARTMENT OF ECONOMICS DECEMBER, 2013 Approval of the Graduate School of Social Sciences Prof. Dr. Meliha Altunışık Director I certify that this thesis satisfies all the requirements as a thesis for the degree of Doctor of Philosophy. Prof. Dr. Nadir Öcal Head of Department This is to certify that we have read this thesis and that in our opinion it is fully adequate, in scope and quality, as a thesis for the degree of Doctor of Philosophy. Prof. Dr. Nadir Öcal Supervisor Examining Committee Members (first name belongs to the chairperson of the jury and the second name belongs to supervisor) Prof. Dr. Halis Akder (METU, ECON) Prof. Dr. Nadir Öcal (METU, ECON) Prof. Dr. Erol Çakmak (TED Uni., ECON) Assoc. Prof. Dr. Ebru Voyvoda (METU, ECON) Assoc. Prof. Dr. Ozan Eruygur (Gazi Uni, ECON) PLAGIARISM I hereby declare that all information in this document has been obtained and presented in accordance with academic rules and ethical conduct. I also declare that, as required by these rules and conduct, I have fully cited and referenced all material and results that are not original to this work. Name, Last name : Hasan Dudu Signature : iii ABSTRACT CLIMATE CHANGE, AGRICULTURE AND TRADE POLICY: CGE ANALYSES AT REGIONAL, NATIONAL AND GLOBAL LEVEL Dudu, Hasan Ph.D., Department of Economics Supervisor: Prof. Dr. Nadir Öcal December 2013, 228 pages This thesis investigates the effects of climate change on the Turkish economy by using computable general equilibrium (CGE) models at regional, national and global level. The physical impact of climate change is first translated into yield and irrigation requirement shocks by using a crop-hydrology model developed for this study. Then these are introduced into the CGE models as productivity shocks to investigate their effects on the overall economy. Simulation results suggest that climate change will come into play after 2035, and its effects on the economy will get worse after 2060. The final economic effects at regional and global levels will depend on the location and structure of agricultural production. Trade liberalization is considered as a policy response to contain the negative impact of the climate change. The results indicate that trade liberalization helps, but the positive effects are limited. International trade plays a key role in the response of the economy to the climate change shocks. Trade liberalization with the European Union is found to have positive effects on welfare of households, however these effects are low compared to the harm caused by climate change. Moreover, it was also noted that these positive effects increased as climate change effects are worsened. iv At the global level, the simulation results suggest that there is a significant uncertainty about the impact of climate change on the global economy. The effects are not homogenous for different regions of the world or different sectors in a region. On the other hand, effects of trade liberalization are not affected by the uncertainty in the climate change scenarios. Our results suggest that adverse effects of climate change on welfare can be alleviated by trade liberalization in most parts of the world. Keywords: Climate Change, International Trade, Turkey, Agriculture, Computable General Equilibrium v ÖZ İKLİM DEĞİŞİKLİĞİ, TARIM VE TİCARET POLİTİKASI: BÖLGESEL, ULUSAL VE KÜRESEL DÜZEYDE BİR HGD ANALİZİ Dudu, Hasan Doktora, İktisat Bölümü Tez Yöneticis: Prof. Dr. Nadir Öcal Aralık 2013, 228 sayfa Bu tez iklim değişikliğinin Türkiye ekonomisi üzerindeki etkilerini bölgesel, ulusal ve küresel düzeyde hesaplanabilir genel denge (HGD) modelleri ile incelemektedir. Öncelikle iklim değişikliğinin fiziksel etkileri bu çalışma için geliştirilmiş olan bir bitki-sulama modeli ile verim ve sulama gereksinimi değişimlerine dönüştürülmüştür. Daha sonar bu değişimler HGD modeline üretkenlik şokları olarak kullanılmıştır. Sonuçlar iklim değişikliğinin 2035 yılından itibaren etkili olmaya başlayacağını, 2060 yılından sonra etkilerin ağırlaşacağını göstermektedir. Hem bölgesel hem de küresel etkiler konuma ve tarımsal üretimin yapısına göre değişikliklik göstermektedir. Uluslararası ticaret ekonominin iklim değişikliği şoklarına verdiği tepkide anahtar rol oynamaktadır. Ulusal düzeyde ticaret serbesleştirmesinin etkileri de incelenmiştir. Avrupa Birliği ile yapılacak olan bir ticaret serbestleşmesi refahı arttırmakta ancak bu artış iklim değişikliğinin sebep olduğu zararı karşılamak konusunda düşük kalmaktadır. Ancak refah artışı iklim değişikliğinin etkileri ağırlaştıkça artmaktadır. Benzetim sonuçları küresel düzeyde iklim değişikliğinin etkilelerinin olası etkilerinin geniş bir yelpazeye yayıldığını göstermektedir. Sonuçlar dünyanın farklı vi bölgeleri ve bir bölgedeki farklı sektörler için değişiklikler göstermektedir. Diğer taraftan, ticaret serbestleşmesinin etkileri genellikle varsayılan iklim değişikliği senaryosundan bağımsızdır. Sonuçlar, iklim değişikliğinin olumsuz etkilerinin küresel çaptaki yapılacak bir ticaret serbestleşmesi ile hafifletilebileceğini göstermektedir. Anahtar Kelimeler: İklim değişikliği, Uluslararası Ticaret, Tarım, Türkiye, Hesaplanabilir Genel Denge vii In memory of my grandmother, Feride Dudu viii ACKNOWLEDGMENTS This thesis would not have existed without the guidance and support of Dr. Erol Çakmak. I am deeply indebted for his encouraging and understanding attitude towards me and my work which made the process enjoyable and allowed me to push my frontiers as much as possible. He was also a generous mentor about life and helped me to adopt a sense of perfection and hard-work. I am also indebted to Dr. Nadir Öcal not only for accepting this work for supervision at a late stage, but also for his support throughout my Ph.D. studies. I wish to express my sincere gratitude to Dr. Halis Akder and Dr. Ebru Voyvoda for their constructive and invaluable recommendations. I would also like to thank to Dr. Ozan Eruygur, who treated me like a brother from the very beginning of my academic career. His inspiring vision and unique approach have always showed me the right path whenever I felt lost during my studies. I am thankful to Dr. Kemal Sarıca, Dr. Wally Tyner, Dr. Xinshen Diao, and Dr. James Thurlow for their insightful comments during the course of my studies. I am also thankful to Annette Morcos for her support in the final editing of the text. Some parts of this work is supported by the CAPRI-RD project financed by European Commission within the 7th Framework Programmé and “Economic Growth in the Euro-Med Area through Trade Integration Project” financed by JRC- IPTS. I should also mention my gratitude to my family for their precious support. They have always been there for me whenever I needed someone to rely on. The last but not the least, I would also like to thank to my colleagues in the Department of Economics of METU, especially to Ünal Töngür. ix TABLE OF CONTENTS PLAGIARISM............................................................................................................. iii ABSTRACT ................................................................................................................ iv ÖZ .............................................................................................................................. vi ACKNOWLEDGMENTS ........................................................................................... ix TABLE OF CfigfigureONTENTS ............................................................................... x LIST OF FIGURES .................................................................................................... xii LIST OF TABLES ................................................................................................... xvii LIST OF ABBREVIATIONS ................................................................................. xviii CHAPTER 1. INTRODUCTION ................................................................................................. 1 2. AN INTEGRATED ANALYSIS OF ECONOMY-WIDE EFFECTS OF CLIMATE CHANGE FOR TURKEY ................................................................. 5 2.1 Climate Change ................................................................................................ 6 2.2 Integrated Modeling Approach ...................................................................... 10 2.2.1 Crop Water Requirement Model ............................................................ 14 2.2.2 Regional CGE model.............................................................................. 20 2.3 Description of Data and Simulations.............................................................. 24 2.4 Results and Discussion ................................................................................... 30 2.5 Conclusion ...................................................................................................... 38 3. CLIMATE CHANGE, AGRICULTURE AND TRADE LIBERALIZATION: A DYNAMIC CGE ANALYSIS FOR TURKEY ........... 40 3.1 Description of the model ................................................................................ 41 3.2 Description of Data ........................................................................................ 47 3.3 Trade Liberalization between EU and Turkey
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