Working Paper 134


Poor countries are more heavily affected by extreme weather events and future climate change than rich countries. This discrepancy is sometimes known as an adaptation deficit.

This paper analyses the link between income and adaptation to climate events theoretically and empirically. We postulate that the adaptation deficit is due to two factors: A demand effect, whereby the demand for the good “climate security” increases with income, and an efficiency effect, which works as a spill-over externality on the supply-side: Adaptation productivity in high-income countries is enhanced because of factors like better infrastructure and stronger institutions.

Using panel data from the Munich Re natural catastrophe database we find evidence for both effects in two climate-related extreme events: tropical cyclones and floods. The demand effect is uniformly strong, but there is considerable variation in adaptation efficiency.

We identify the countries where inefficiencies are largest. Lower adaptation efficiency is associated in particular with less government spending, an uneven income distribution and bad governance.

The conclusion for policy is that international efforts to close the adaptation deficit have to include both inclusive growth policies (which boost adaptation demand) and dedicated adaptation support (which enhances spill-overs), the latter targeted at the countries with the highest adaptation inefficiencies.

Samuel Fankhauser and Thomas K.J. McDermott

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