Understanding the adaptation deficit: Why are poor countries more vulnerable to climate events than rich countries?

Poor countries are more heavily affected by extreme weather events and future climate change than rich countries. One of the reasons for this is the so-called adaptation deficit, that is, limits in the ability of poorer countries to adapt. This paper analyses the link between income and adaptation to climate events theoretically and empirically. We postulate that the adaptation deficit may be 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 public services and stronger institutions. Using panel data from the Munich Re natural catastrophe database we find strong evidence for a demand effect for adaptation to two climate-related extreme events, tropical cyclones and floods. Evidence on the efficiency effect is more equivocal. There are some indications that adaptation in rich countries might be more efficient, but the evidence is far from conclusive. The implication for research is that better data, in particular on adaptation effort, need to be collected to understand adaptation efficiency. In terms of policy, we conclude that inclusive growth policies (which boost adaptation demand) should be an important component of international efforts to close the adaptation deficit.