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Faculty of Economics

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Mohaddes, K., and Williams, R.

The Adaptive Investment Effect: Evidence from Chinese Provinces

CWPE2046

Abstract: This paper investigates the so-called “adaptive investment effect", a redirection of investment in productive capital towards adaptive capital with a view to mitigating the negative effects of climate change. We estimate the costs associated with the adaptive investment effect using data on Chinese provinces and find that the impact of investment on economic growth is reduced by between 27% and 37% in provinces investing more in adaptive capital. This implies that the social cost of carbon is higher than existing studies suggest, making it more urgent for policymakers to take action against climate change.

Keywords: Climate change, adaptation, investment, China

JEL Codes: C33 O40 O53 Q51 Q54

Author links: Kamiar Mohaddes  

PDF: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe2046.pdf