Climate impacts on capital accumulation in the small island state of Barbados

Small island developing states (SIDS) are expected to be among the most heavily impacted by climate change, and their reliance on exports contributes to fluctuations in growth and recurrent high debt levels. The combination of economic and climate vulnerability suggests that understanding climate-economy interactions is particularly important for SIDS. Yet, because of the limited data for most small islands, there have been few studies, particularly those that treat the economy as a whole.

This paper constructs a model of climate-related damage for small island developing states. The authors focus on the loss of commercial capital stocks, such as buildings and equipment, through extreme climate events. They draw on the engineering literature to capture the degree of anticipation of climate change when building new capital stocks and balancing current adaptation expenditure against future loss and damage.

The paper applies the model to tropical storm damage in the small island developing state of Barbados and shows how anticipatory behavior changes the damage to infrastructure for the same degree of climate change. Thus, in the model, damage depends on behavior as well as climate variables.