Country-Specific Framework for Environmental Policy Analysis: Assessing International Financing for Climate Change Adaptation in Bangladesh

Abstract: We present a single-region computable general equilibrium (CGE) model with trade elasticities calibrated based on a two-region setup. 

Our goal is to offer a concise, reusable framework for domestic policy analysis while explicitly representing the nominal exchange rate, a key variable often absent from global models. In addition, we incorporate an established theoretical framework to improve the modeling of domestic production, exports, imports and exchange rate dynamics. We then apply our model on Bangladesh to simulate foreign climate-finance transfers and temperature-driven productivity losses. 

The main finding is that foreign transfers raise aggregate consumption while reallocating activity toward non-tradables in a Dutch disease (i.e., income windfall) pattern, and that an annual transfer of 2.8 billion USD through 2050 can offset specified warming-induced welfare losses.