Key Details
The OECD Economics Department Working Paper The Climate and Adaptation Spatial General Equilibrium Model (OECD-CASGEM): The Macroeconomic Cost of Climate Change, estimates how local climate hazards could affect production, incomes and population distribution across the global economy.
Current-policy pathway: Global GDP per person is projected to be approximately 3% lower by 2050 and 6.3% lower by 2100 than under a scenario in which climate conditions remain at historical levels.
Very high-emissions pathway: The corresponding losses rise to approximately 6% by 2050 and 18% by 2100.
South Asian exposure: Parts of South Asia could experience losses exceeding 15–20% by 2100 under current policies and 20–30% under very high emissions.
Observed heat effect: Each additional day above 40°C is associated with an average reduction of almost 0.2% in firms’ annual productivity.
Observed flood effect: Direct flood exposure is associated with a 2.7% decline in firms’ capital stock over the following four years.
Economic adjustment: Changes in trade and migration reduce projected global losses in 2100 by about 8%under very high emissions and lower the disparity in losses across regions by approximately 22%.
Population movement: Southern Asia’s population is modelled to be around 7% lower by 2100 under very high emissions than in the no-climate-change baseline, reflecting movement within and across countries.
These are modelled scenarios rather than forecasts. None of the regional percentages represents a separate projection for India.
A Global Model Built from Local Climate Damage
The paper introduces the OECD Climate and Adaptation Spatial General Equilibrium Model (OECD-CASGEM), which estimates how local climate damage affects the wider economy through production, supply chains, trade and population movements.
OECD-CASGEM combines historically observed economic effects from four climate hazards with a model of how households and businesses respond:
extreme heat reducing productivity;
floods damaging firms’ physical capital;
changing temperature and rainfall affecting crop yields; and
sea-level rise permanently reducing usable land.
The model covers 927 regions across 186 countries. It represents 11 sectors in OECD economies and three broader sectors—agriculture, manufacturing and services—elsewhere.
India is included as an OECD key partner, with output and employment calibrated at the first administrative level, broadly corresponding to States and Union Territories. This gives India subnational representation, although the paper does not provide a standalone national loss estimate.
Heat Is the Largest Driver, with Agriculture Adding to South Asia’s Exposure
Heat stress is the largest source of projected economic damage across most regions. The historical firm-level analysis finds that each additional day above 40°C is associated with an average annual productivity reduction of almost 0.2%.
Under the high-emissions pathway, parts of a belt stretching from North Africa through the Middle East to South Asia could experience more than 100 additional days above 40°C annually by the end of the century.
The effects extend beyond outdoor work to manufacturing and services, while also increasing cooling demand and pressure on infrastructure.
Worsening crop-growing conditions add significantly to projected losses in Southern Asia, where greater crop sensitivity combines with higher economic dependence on agriculture. The effects can extend through food prices, processing, trade and rural incomes.
Floods and Rising Seas Produce Concentrated Local Damage
Flooding and sea-level rise have smaller effects on global output than extreme heat but can dominate losses in exposed river basins and coastal areas.
Flood exposure primarily damages firms through physical capital. Affected firms recorded an average 2.7% reduction in capital stock over the following four years, while estimated effects on employment and longer-term productivity were smaller and generally not statistically significant.
Sea-level rise operates through permanent land loss, raising property and production costs and potentially displacing populations.
The geographic concentration of these effects means national averages can conceal severe local losses, including where other regions of the same country experience smaller losses or gains.
Supply Chains Can Amplify Local Climate Damage
Climate shocks can spread beyond the directly affected region when lost production creates shortages or raises prices for firms elsewhere.
The model finds that production networks generally amplify climate losses as disruption passes through suppliers and downstream users. Regions can therefore suffer even when their own direct climate exposure is limited.
Trade can partly cushion these shocks by shifting sourcing towards less-affected locations. But it can also transmit weaker demand and higher costs, making its overall effect dependent on a region’s exposure, industrial structure and position within production networks.
Trade and Migration Redistribute Rather Than Eliminate Losses
Businesses can change suppliers or production locations, while workers and households can move towards areas offering better economic conditions. Together, these adjustments reduce projected global losses in 2100 by about 8%under the high-emissions pathway.
They also redistribute the burden: variation in GDP-per-person losses across the 927 regions falls by around 22% when trade and labour mobility are allowed to adjust.
Migration can nevertheless increase pressure on jobs, housing and public services in receiving regions.
Under very high emissions, Southern Asia’s population is around 7% below the no-climate-change baseline by 2100in the model. This reflects both internal and international movement across the region; it is not a projection that India’s population will fall by 7%.
Adaptation in One Region Can Protect Others
Resilient transport, electricity systems or flood protection can prevent local disruption from propagating through supply chains. The benefits of adaptation can therefore extend well beyond the jurisdiction financing it.
This creates a potential underinvestment problem when local governments or businesses bear the costs but capture only part of the wider benefit.
The paper therefore points to interregional cost-sharing, public co-financing, insurance and risk-transfer mechanisms, alongside targeted support for smaller firms with weaker access to climate-risk information, finance, insurance and resilient infrastructure.
Policy Relevance
IMF paper’s findings make climate adaptation an issue of economic planning, fiscal coordination and regional development, not only environmental protection.
State-level exposure matters: Heat, agricultural dependence, flood risk and industrial concentration differ widely across India. National averages may conceal the locations where economic losses are most severe.
Adaptation priorities should reflect economic spillovers: Protecting a port, industrial cluster, agricultural region, electricity network or freight corridor may prevent disruption across several states.
Extreme heat affects economic capacity: Heat-action planning needs to account for worker productivity, electricity demand, transport reliability and occupational exposure alongside mortality and health.
Migration requires destination planning: Housing, urban transport, social protection, skills recognition and public services will influence whether climate-related movement becomes an orderly adjustment or a source of greater vulnerability.
Centre-State financing will be important: Projects whose benefits cross administrative boundaries may require shared funding rather than reliance on the budgets of the most exposed states.
MSMEs face a resilience disadvantage: Timely risk information, suitable insurance and access to adaptation finance will shape whether smaller firms can withstand repeated disruptions.
The model already allows firms, workers and trade patterns to adjust to climate change. It does not explicitly model additional protective investments such as flood defences, cooling technologies or stronger infrastructure. It also excludes storms, wildfires, disease, biodiversity loss, ecosystem damage and climatic tipping points. The resulting estimates capture neither every possible loss nor the full benefits of planned adaptation.
Follow the Full Paper Here: The climate and adaptation spatial general equilibrium model (OECD-CASGEM): the macroeconomic cost of climate change