The Effects of Climate Change on Poverty and Income Distribution: A Case Study for Rural Mexico

There is a growing concern about the possibility that poverty and inequality might increase as a result of climate change. Nevertheless, in contrast to the widely analyzed potential impacts of climate change on the global economy, the impacts on income distribution and poverty have received limited attention. This chapter contributes to the existing literature by looking at the relationship between climate change poverty and income distribution using household level data. Agricultural income is used as the transmission channel between climate change, poverty and inequality. Geographic heterogeneity at the national and regional levels, in terms of both climate change predictions and relevance of agricultural income, is taken into account. We follow the Ricardian method to look at the impacts of increases in temperature and changes in precipitation patterns on agricultural income. With those results we use simulation methods in order to calculate what could happen to poverty and inequality under different climate scenarios. Results show that in Mexico climate change could have considerable negative impacts, at the national and regional levels, in terms of both poverty and inequality.