Economic Analysis and Policy 62 (2019) 307–324 Contents lists available at ScienceDirect Economic Analysis and Policy journal homepage: www.elsevier.com/locate/eap Full length article Is there a role for trade liberalization in mitigating the impacts of climate change on agriculture? Sumali Dissanayake a,b , Renuka Mahadevan a,∗ , John Asafu-Adjaye a a School of Economics, University of Queensland, Brisbane, Australia b Faculty of Agriculture, Rajarata University of Sri Lanka, Sri Lanka article info Article history: Received 15 December 2018 Received in revised form 30 March 2019 Accepted 11 April 2019 Available online 17 April 2019 Keywords: Climate change Trade liberalization Welfare Computable general equilibrium model abstract Using a computable general equilibrium framework, this paper uses Sri Lanka and Bangladesh as case studies in examining the associated macroeconomic and sectoral impacts under two different climate change scenarios. Our results indicate that a nation’s welfare deteriorates due to technical efficiency losses from climate change. Neither unilateral nor regional trade liberalization as a mitigating option improves welfare in these countries. For Sri Lanka, global full trade liberalization of all commodities is the optimum policy with some welfare gains. For Bangladesh on the other hand, regional partial agricultural trade liberalization is the optimum option with the least welfare deterioration. These results show that under climate change, countries within South Asia should respond differently to climate-induced crop productivity changes and no one optimum policy fits all. © 2019 Published by Elsevier B.V. on behalf of Economic Society of Australia, Queensland. 1. Introduction Agriculture which often plays a dominant role in most developing economies in terms of growth and development, is one of the most climate dependent economic activity. Hence this sector is likely to become most vulnerable with current and future climate change. Furthermore, developing countries with a large number of their rural populations entirely dependent on agriculture as the main livelihood, are expected to experience a substantial loss in their agricultural production due to climate change, and hence make them even more vulnerable (Jorstad and Webersik, 2016). Substantial research effort has focused on climate change and its impacts on the economy’s welfare in the recent past (Tol, 2010). In the absence of a climate mitigation policy, poor countries will experience a 40% income reduction by the end of the century compared to its original estimate, which was a 12% income reduction (Hof, 2015). The role of world commodity markets as an adjustment mechanism in response to the negative impacts of climate change on agriculture was first identified by Kane et al. (1991). It was argued that although climate change may cause varying effects on agricultural yields in different regions, global patterns of consumption and production have been altered in such a way to minimize the severity of global and domestic economic impacts of climate change on agriculture (ibid). In this study, we hypothesize that trade liberalization can serve as a mechanism for integrating world commodity markets while simultaneously offsetting the adverse global and local economic impacts of climate-induced crop productivity changes. Several studies have examined the impacts of climate change on agriculture (see Calzadilla et al., 2013; Kane et al., 1991; Piao et al., 2010; Tsigas et al., 1997) and others such as Randhir and Hertel (2000), Reilly and Hohmann (1993), and ∗ Corresponding author. E-mail addresses: sumali.dissanayake@uq.net.au (S. Dissanayake), mahadevan@uq.edu.au (R. Mahadevan), asafuadjaye@uq.edu.au (J. Asafu-Adjaye). https://doi.org/10.1016/j.eap.2019.04.006 0313-5926/© 2019 Published by Elsevier B.V. on behalf of Economic Society of Australia, Queensland.