Effects of climate shocks to Philippine international trade

As climate change is established to occur on scientific bases, it is imperative to identify the effect of climate shocks on economy. According to international organizations, agriculture, forestry and fisheries are the most vulnerable sectors to climate change predominantly for developing and tropical countries, and thus it is hypothesized to have significant impacts on world-wide international trade. Although Jones and Olken (2010) demonstrate the effect of climate shocks on exports with U.S. and world data, the evidence is still highly scarce for developing countries. Given these conditions, we examine how climate shocks affect international trade by focusing on the case of the Philippines as a representative of developing and tropical countries. To this end, we apply a fixed effects model with the data of Philippine international trade and world climate from 1991 to 2009. In particular, the novelty lies in examining both exports and imports within a single empirical framework and in clarifying climate shocks on both flows of international trade. The results show that both Philippine exports and imports are negatively affected by an increase in temperature of the trade partners. We have also identified some specific sectors are highly vulnerable such as agriculture and manufacturing. Overall, these results imply that Philippine international trade shrinks as the world temperature rises, and the same qualitative results may apply to other developing and tropical countries whose features are somewhat similar to those of the Philippines. The findings could be considered an important guidance on collective policy decisions on climate change in an international community especially as developing and tropical countries would have difficulties in mitigating the effect only by themselves.