Increasing resilience to climate change is good development policy

What key insights have emerged from development economics in the past decade, and how should they impact the work of the World Bank? A new working paper Toward Successful Development Policies: Insights from Research in Development Economics from the Bank’s research department captures 13 of the most significant insights in the world of development economics.

Here’s insight #11 – on how investments to improve resilience to climate change can have big payoffs in development outcomes. See all previous insights here: Thirteen insights for successful development policies

Scientific and economic research over the past decade has provided increased understanding of the threats that climate change poses for inclusive economic progress and poverty reduction. ^ref1  While the timing and severity of future climate change impacts remain uncertain, the world will confront threats to economic productivity and welfare through a variety of channels including elevated health risks, reduced land and labor productivity, degradation of natural ecosystems, greater exposure to extreme events (droughts, storms, floods), and higher infrastructure investment costs.^ref2 Low-income people face greater exposure to climate change risks but have lower capacity to reduce their vulnerability.  Without strong counter-measures, climate change impacts will exacerbate poverty and inequality in developing countries and make escape from poverty considerably more difficult. This places increased resilience to climate change at the center of development policy.

The threats to sustainable development and poverty reduction posed by climate change are starkly illustrated by the findings of a multi-year, multi-disciplinary program of research in southwest coastal Bangladesh, a very impoverished area of the country. As sea level rises and storm-caused inundations increase in severity and frequency, the resulting soil and water salinization will reduce the availability of food, harm maternal and child health (including higher infant mortality), damage a World Heritage site, and lead to outmigration that increases poverty among those vulnerable family members left behind.^{ref3, ref4, ref5} These problems are hardly unique to southwest coastal Bangladesh.  Climate variability has been shown to have adverse impacts on household welfare in rural Mexico, due in particular to challenges in smoothing out fluctuations in agricultural incomes.^ref6 In both marginal agricultural areas and coastal zones, the poor are especially disadvantaged by climate change because they are so dependent on natural assets affected by climate change, and because their options for escaping their difficult circumstances are limited.^ref7 In urban areas across the developing world, poor people live in the areas most vulnerable to natural disasters because they are affordable. ^ref8 Other global evidence indicates that adverse climatic conditions are an important source of conflict among people and groups.^ref9

Research showing how climate change threatens economic development and poverty alleviation reveals the importance of seeing climate change adaptation as a key part of overall development policy.  However, the research also has highlighted the substantial institutional and other challenges to implementing focused climate change adaptation measures and “resilience-smart” development policies and investments: the problem of “adaptation deficits.” One reason these arise is that sustained adaptation to climate change is more complicated than traditional informal coping mechanisms, making adaptation costly and risky for poor households.^ref10 For example, poor migrants to cities from southwest coastal Bangladesh have low human capital, so it may take some time for them to gain enough income to be able to have sufficient funds to remit to their families. This is just one example of how marginalized groups in ecologically marginal areas can get left behind, even as economic development progresses in the more formal sectors.^ref11 A

daptation policies are subject to the same challenges of limited institutional capacities and other social capital deficits as are other development measures.^ref12 Improved access to infrastructure and financial services are among the elements needed to lower barriers to successful adaptation. Yet all too often, actions that can ameliorate climate change threats and improve economic development prospects aside from climate change are not taken.  For infrastructure, there is a tendency to focus on the cost of constructing capacity while not adequately appreciating the longer-term costs of inadequate resilience, relative to the incremental cost of installing more resilient capacity.^ref13 For natural disasters, there is a tendency to focus more on asset replacement while under-estimating the welfare cost of disrupted lives and livelihoods, leading to less than adequate measures to reduce risks in advance. ^ref14 

Increased income can have a powerful effect on the capacity of individuals to cope with climate change.   In that sense, economic development and poverty alleviation are key ingredients for reducing vulnerability to climate change, just as reducing vulnerability to climate change enhances development prospects.  However, higher income does not automatically assure less vulnerability. For example, a large bridge investment in Bangladesh connected a previously isolated territory to the rest of the economy, bringing with it substantial improvements in living standards. The improvement resulted largely from the previously isolated territory becoming able to utilize its comparative advantage in high-value agriculture with faster and lower-cost access to outside markets.^ref15 However, this also could leave the territory more vulnerable to future climate change related disruptions as agricultural intensification makes the region more vulnerable to extreme weather events.  Economic development and poverty reduction policies need to factor in climate change risks to deliver both economic progress and reduced vulnerability.^ref16

The World Bank and other international development partners are increasingly active in encouraging client countries to pursue more holistic assessments of life-cycle benefits and costs of more resilient and efficient investment, and greater emphasis on risk reduction as well as recovery capabilities.^ref17  Nevertheless, experience highlights the importance of better understanding why so many pro-development, pro-resilience initiatives encounter resistance in developing countries.