The Bank of England published a staff working paper assessing whether climate change affects international trade costs directly, concluding that rising temperatures in either the exporting or importing country increase bilateral trade costs and that adaptation to these impacts appears slow. Using 190 years of international trade and weather data in an augmented gravity framework, the paper attributes much of the effect to maritime trade, consistent with sea ports’ vulnerability to climate-related disruption. Embedding the estimated trade-cost channel in a standard international trade model, it estimates that 2010s welfare would have been 1.6% higher if the trade-cost impact of climate change over the preceding 100 years could be undone, with welfare effects shaped by neighbours’ climate trajectories as well as countries’ own trends. The analysis suggests poor and rich countries are roughly equally harmed, smaller more trade-reliant economies are especially affected, and omitting the trade-cost channel leads to a 9% underestimate of the welfare impact of climate change. The working paper is published as research in progress to elicit comments and debate and does not represent Bank of England policy.
Bank of England 2025-12-05
Bank of England staff paper finds climate change raises bilateral trade costs and implies a 1.6% 2010s welfare loss
The Bank of England released a staff working paper examining climate change's impact on international trade costs, finding rising temperatures increase bilateral trade costs, particularly affecting maritime trade. Undoing this impact could have raised 2010s welfare by 1.6%, with smaller, trade-reliant economies most affected. The paper is intended to provoke discussion and does not reflect official Bank of England policy.