Vietnam's Long-run Growth: Connecting the Dots through Climate Damage Spillovers

Abstract We propose to examine how climate damage may transform Vietnam's long-run growth rate. Because of cross-country linkages forged by bilateral trade, there are two channels through which international damage spillovers may occur. First, the dynamics of partners' growth determine future trends in Vietnam's volume of exports. Second, since the domestic impact of climate change may be heterogeneous across countries, there will be a differentiated impact on export and import market shares. Both terms play a critical role in changing trade patterns that are likely to shift Vietnam's external constraint. This demand-side view of growth based on the balance-of-payments constraint is a powerful predictor of inter-country growth differences. Our study show that the consequences of climate change could equate to a 2.5% reduction in Vietnam's growth rate over the period 2020-2060. Our decomposition exercise by effect and by partner area shows that international damage spillovers result from very different individual behaviours.