This paper forecasts the GDP at PPP per capita in several countries and the effects climate change will have on them.

1. Climate Change and
Developing Countries in
2050
Will the citizens of present day developing countries be able to retain their wealth?
David Manukjan
10/17/2013

2. 1
Introduction to Climate Change and Its Effects on the Future
Climate change is inevitable; the only uncertainty is how severe its impacts will be. It is
widely accepted in the scientific community that in order to prevent the very worst impacts of
climate change, the increase in global temperature by 2050 should be below 2 degrees Celsius. If
global temperatures increase by more than 2°C, the effects compound and become even worse.
Since the year 2000, worldwide carbon dioxide concentrations have decreased by approximately
0.8% per year. However, to achieve the 2°C target by 2050, carbon dioxide concentrations would
have to be cut by 5.1% every year (Johnson, 2012). Even if this rate were achievable in the
future, it is unreasonable to expect it to be achieved in the short term, meaning that the reduction
in carbon in later years would need to be far greater than 5.1% in order to achieve the 2°C target.
However, governments’ ambitions to limit global warming to 2°C seem highly unrealistic, and I
believe that an increase in global temperatures between 2.5 and 4°C by the year 2050 seems most
likely, with 6°C and above a pessimistic, yet still plausible, scenario. Figure 1 shows the
estimated global temperature increases that will occur for different average annual rates of
decarburization to the year 2050. A ―business as usual‖ approach to global warming, where the
world continues to decarbonize at the current 0.8 rate, would result in a 6°C increase in global
temperatures. An annual decarburization rate of 2.9% would lead to a 4°C increase in
temperatures. This ―gradual greening‖ scenario would require energy intensity improvements in
the short term of twice the average rate since 2000, for China and India to significantly shift from
coal to natural gas, and for renewable fuels to be used worldwide by 2050. Past studies predict
that this kind of program should not reduce global GDP in 2050 by more than 2-3% of GDP, but
would require a much greater commitment from all major economies than what has occurred in
recent years (Johnson, 2012). It is important to note that while this is the most likely scenario to

3. 2
occur and is better than a 6°C rise in temperatures, it would still be highly damaging to the
world, economically, socially, and politically.
While most developed countries and most of the BRIC countries have had stable or
declining rates in change of carbon intensity, a growing concern is now on second and third
world countries that are showing signs of high economic growth rates for the future. As these
countries rush to develop, more CO2 emissions will be generated as a result, making it more
difficult to reduce worldwide carbon dioxide concentrations. This could possibly even lower
future annual rates of global decarburization, which would in turn raise the global temperature.
Figure 1: Implied concentration levels at different rates of decarburization.
Source: Johnson (2012).
The effects of global warming will severely risk human development. Extreme
temperatures, heat waves, rainfall, and droughts are projected to increase with rising
temperatures, and risks will be much higher in a 4°C warmer world compared to a 2°C warmer
world (World Bank, 2012). A 4°C increase in global temperatures would raise land temperatures
on average by 4 to 10°C, because the increase in overall global temperature is compounded

4. 3
rather than simply added on to current temperatures. In regions such as the Mediterranean, North
Africa, the Middle East, and the Tibetan plateau, almost all summer months are likely to be
warmer than the most extreme heat waves presently experienced. These heat waves would cause
death, forest fires, and harvest losses.
Aside from the heat risks, the increased carbon dioxide concentrations in the atmosphere
would cause the world’s oceans to become more acidic. Ocean acidification would cause great
harm to marine life, coral reefs, and the people that depend on them for food, income, and
tourism. Climate change will become the number one cause of ecosystem damage, surpassing
habitat destruction by humans.
Rising sea levels are also a consequence of rising global temperatures, with a predicted
rise of .3 to .8 meters in sea level by 2100 from a 2°C increase in global temperatures. This
would lead to altered and severe weather patterns, endangering highly vulnerable small island
states and cities in Mozambique, Madagascar, Mexico, Venezuela, India, Bangladesh, Indonesia,
the Philippines, and Vietnam.
Global food security will be difficult to achieve, with changing weather patterns making
different parts of the world suitable for food production every decade and decreasing crop yields
(Nelson, 2010). These altered climate patterns and food and water shortages would displace large
populations of people (World Business Council for Sustainable Development). The comparative
advantage of food production will shift towards developed countries due to changing weather
patterns. Air pollution will overtake contaminated water and lack of sanitation as the prime cause
of premature mortality across the globe, potentially rising to 3.6 million deaths per year—mostly
in China and India (Organization for Economic Co-operation and Development, 2012). Poverty,

5. 4
nutritional deficits, water contamination, and incidences of epidemic diseases are all expected to
increase, mainly in developing countries.
Developing countries are geologically most affected by climate change, and their
economies are most likely too sensitive to absorb the costs of climate change while maintaining
high growth rates. I predict that as developing countries advance economically in the present
day, they will increase global carbon levels and prevent global decarburization levels from
reaching those needed to prevent severe climate change. As a result, I hypothesize that the
purchasing power parity of the people in these developing countries will not increase greatly
because the costs of food, clean water, and other necessities will rise due to decreased supply
caused by the environmental damage from globalization.
Hypothesis
The citizens of the United States and other developed countries will be able to absorb the
increased prices of commodities and the added costs of global warming, because they will still
have a high purchasing power parity per capita in 2050. Citizens in current developing countries
will not be able to adjust to these added costs because their spending power will not grow
enough by 2050 to cover these added costs.

6. 5
Methodology
It is difficult estimating what will happen 40 years from now, given what an
unpredictable environment the world will be in 2050. However, it is possible to give an
approximate estimate, which is something I will attempt to do. My calculations can be found on
pages 6 and 7. I first found the twenty countries with the largest gross domestic product at
purchasing power parity in 2011 (World Bank, 2011). I then found the populations for these
countries in 2011 using the World Bank database, and divided the GDP at PPP by the population
to find the gross domestic product at purchasing power parity per capita (World Bank, 2011).
This would give a person’s average spending power relative to the United States. I then ranked
the countries from greatest to lowest GDP at PPP per capita for comparison purposes. I chose to
use this this method of comparison as opposed to using market exchange rates so that I could
more easily compare spending power and average living standards across all twenty countries.
Next, I researched and found the projected GDP at PPP forecasts for the 20 largest
economies for the year 2050, estimated by PricewaterhouseCoopers (Hawksworth and Chan,
2013). I then used the World Bank’s estimates for the 2050 population to find and rank the GDP
at PPP per capita (World Bank, 2011). To get a better understanding of the quality of life in the
twenty countries with the largest economies, I then subtracted the 2011 poverty threshold in the
United States, which for an individual is an income of $11,484 or less, from the GDP at PPP per
capita for each country (United States Census Bureau, 2011). This would measure a person’s
average spending capacity after meeting their basic survival needs from their annual income.
Since purchasing power parity rates for each country are adjusted based on the cost of a basket of
goods that typically meet basic needs, I believe that this method is applicatory, though it is a

7. 6
Figures 2 and 3: 2011 and 2050 GDP at PPP per capita calculations
Country GDP at PPP ($billion) Population (thousands) GDP at PPP per capita
US 15,094 309,349 $48,793
China 11,347 1,338,300 $8,479
India 4,531 1,224,615 $3,700
Japan 4,381 127,451 $34,374
Germany 3,221 81,777 $39,388
Russia 3,031 141,750 $21,383
Brazil 2,305 194,946 $11,824
France 2,303 64,895 $35,488
UK 2,287 62,232 $36,750
Italy 1,979 60,483 $32,720
Mexico 1,761 113,423 $15,526
Spain 1,512 46,071 $32,819
South Korea 1,504 48,875 $30,772
Canada 1,398 34,126 $40,966
Turkey 1,243 72,752 $17,085
Indonesia 1,131 239,870 $4,715
Australia 893 22,299 $40,047
Poland 813 38,184 $21,292
Argentina 720 40,412 $17,816
Saudi Arabia 686 27,448 $24,993
2011
Country Projected GDP at PPP ($billion) Population (thousands) GDP at PPP per capita
China 53,856 1,273,054 $42,305
US 37,998 397,979 $95,477
India 34,704 1,684,197 $20,606
Brazil 8,825 218,655 $40,360
Japan 8,065 105,680 $76,315
Russia 8,013 124,280 $64,475
Mexico 7,409 142,253 $52,083
Indonesia 6,346 289,452 $21,924
Germany 5,822 71,992 $80,870
France 5,714 73,225 $78,033
UK 5,598 71,484 $78,311
Turkey 5,032 91,088 $55,243
Nigeria 3,964 388,428 $10,205
Italy 3,867 58,779 $65,789
Spain 3,612 51,452 $70,201
Canada 3,549 43,613 $81,375
South Korea 3,545 46,411 $76,383
Saudi Arabia 3,090 43,160 $71,594
Vietnam 2,715 101,377 $26,781
Argentina 2,620 50,003 $52,397
2050

8. 7
Figures 4 and 5: 2011 and 2050 GDP at PPP per capita over Poverty Threshold Calculations
Country GDP at PPP per capita GDP at PPP per capita over Poverty Threshold
US $48,793 $37,309
Canada $40,966 $29,482
Australia $40,047 $28,563
Germany $39,388 $27,904
UK $36,750 $25,266
France $35,488 $24,004
Japan $34,374 $22,890
Spain $32,819 $21,335
Italy $32,720 $21,236
South Korea $30,772 $19,288
Saudi Arabia $24,993 $13,509
Russia $21,383 $9,899
Poland $21,292 $9,808
Argentina $17,816 $6,332
Turkey $17,085 $5,601
Mexico $15,526 $4,042
Brazil $11,824 $340
China $8,479 -$3,005
Indonesia $4,715 -$6,769
India $3,700 -$7,784
2011

9. 8
rough comparison since levels of poverty are measured differently abroad. The reason some
countries have negative GDP at PPP per capita over the Poverty Threshold values is because
large parts of the populations of those countries are unable to meet their basic needs, and
starvation and malnutrition are still common there.
I then attempted to replicate the same comparison, but for the year 2050. I already had the
GDP at PPP per capita calculated, but after researching, I found no estimated values for the
estimated poverty threshold in 2050. However, I recognized that the poverty threshold was
adjusted yearly for inflation from the change in the consumer price index of urban customers
(Bureau of Labor Statistics, 2013). Thus, I used the 2011 poverty threshold in the United States
of $11,484 as the present value, and discounted it at the forecasted annual inflation rates of the
CPI-U index until the year 2022, which were provided by the Congressional Budget Office
(Congressional Budget Office, 2012). This would lead me to the future value of the poverty
threshold in 2022, $14,909.50. From there, I had to estimate my own inflation rates in order to
forecast the poverty threshold in 2050. For years 2022 – 2025, I used an annual 2.8% inflation
rate, for 2025-2035 a 3.3% rate, for 2035-2045 a 4% rate, and for 2046-2050 a 4.5% rate. A
summary of these rates can be seen in Figure 6. After discounting at these rates, I found the
future value of the poverty threshold in 2050 to be $41,339.

10. 9
Figure 6: Summary of inflation rates used in predicting 2050 poverty threshold
Source: Congressional Budget Office 2012 and author’s estimates
I chose to steadily increase the inflation rate until 2050 to account for rising food and
energy costs as the effects of climate change worsen. Real food prices are expected to almost
double by the year 2050, even of basic food staples as shown in Figure 7 (Nelson, 2010). I
believe that the inflation rates I’ve used are realistic and possibly even a conservative estimate,
considering that mean annual inflation rate since the government began recording these values in
1913 was 3.33%. Using the average annual inflation rate since 1913 to find the future value of
2050 from the 2022 present value, I found that the future value in 2050 would be $37,403.19,
which is only $3935.86 lower than my own estimate.
Rates used in Calculations
2011 = 3.2%
2012 = 2.1%
2013 = 1.5%
2014 = 1.6%
2015 = 2.0%
2016 = 2.2%
2017 = 2.3%
2018 = 2.3%
2019 = 2.3%
2020 = 2.3%
2021 = 2.3%
2022 = 2.3%
2022 - 2025 = 2.8% each year
2025-2035 = 3.3% each year
2035 -2045=4.0% each year
2046-2050 = 4.5% each year

11. 10
Figure 7: Forecasted percentage real price increases from 2010 to 2050 of basic food commodities
Source: Nelson (2010).
The next section speaks about what the future will be like in countries with negative or
low values for GDP at PPP per capita over the poverty threshold in 2050.
Findings: Climate change offsets some of the benefits of income growth
My research shows that climate change offsets some of the benefits of income growth
due to high inflation and rising real costs. I believe that in the year 2050, investment in countries
with negative values for GDP at PPP per capita over the poverty threshold will be risky
investments. Countries with negative values for GDP at PPP per capita over the poverty
threshold will have difficulties protecting citizens from the effects of climate change and may
have to increase investment in social safety nets, and some of those countries harder hit by
climate change will have lower GDP at PPP per capita in 2050 than they do in 2013. Some of the
6°C
3-4°C
>6°C
2050 Global
Temperature
Increase

12. 11
current N-11 countries will still have wealthier citizens on average than some of the current
BRIC countries in 2050, though the BRIC countries will have higher overall GDPs. My
calculations do not include the damages of global warming, which for the year 2050 are
estimated to be $558.57 billion dollars for the United States, or about 1.47% of GDP (Ackerman
and Stanton, 2008). I did not include theses costs when comparing the country’s citizens’ ability
to maintain a quality of life above poverty, because global warming damages would vary greatly
depending on the country, and data was not available for most of them. Thus it can be expected
that spending potential will be even lower.
From the countries with negative values for GDP at PPP per capita in 2011, China was
the only country to get a positive value for 2050. Brazil actually dropped from +$340 to -978. It
seems like the average spending potential of citizens in most of the currently developing
countries will not rise fast enough to improve their quality of life by 2050’s standards, while
countries whose GDP at PPP per capita are currently above the poverty threshold will continue
to thrive and grow with the exception of Australia (which is due to heat waves, other severe
weather effects, and a decline in population).
I believe that this is because the economies currently doing well economically have a
technological, capital, and educational advantage that developing countries will not be able to
catch up to in time before inflation, food prices, and costs from global warming begin to rise.
When these changes start, the people in the developing countries will still have a higher
purchasing power parity per capita than they do in the present day. However, citizens in current
developing countries will not be able to adjust to these added costs because their spending power

13. 12
will not grow enough by 2050 to cover these added costs. Thus, my findings support my
hypothesis.
Planning for the Future
Climate change will increase the risks associated with foreign direct investment in low or
negative GDP at PPP per capita over the poverty threshold countries, because of their lower
capacity of absorbing the costs associated with climate change. Investors may want to choose
instead to invest in countries with medium-to-low positive GDP at PPP per capita over the
poverty threshold countries or in regions where climate risk is not as high, depending on their
tolerance for risk. Any investment in long-term assets or infrastructure, particularly in coastal or
low-lying regions, needs to be prepared for damages. Governments should consider providing
incentives to attract citizens away from high risk regions to inland locations and higher altitudes
so that money in the present day is not wasted on infrastructure or protection that might
ultimately be destroyed, abandoned, or ineffective. It is important that the people who become
displaced by climate change will have somewhere to go, and won’t be starting off with nothing.
Additionally, citizens should save for their own retirement and decrease their reliance on
government programs, because the likelihood of countries being fully prepared for a future of
global warming is low.
All countries need to strengthen their food, water, and energy supply chains. It is possible
that the worse the effects of climate change become, the more protectionist developed countries
will become, despite the fact that due to the severe weather changes international trade of food
will need to increase significantly in order to feed the world population. The production of food

14. 13
in developed countries generally benefits from climate change, compensating for declines in
developing nations (Nelson, 2010). Carbon intensive industries need to anticipate more invasive
regulation and plan accordingly and begin considering their options for alternate sources of
energy. By 2050, there will be an increase between 8.5 and 10.3 percent in the number of
malnourished children in all developing countries (Nelson, 2010).
The only way to avoid terrible effects of climate change is for there to be radical
transformations in the ways the global economy currently functions: rapid uptake of renewable
energy, sharp falls in fossil fuel use, removal of industrial emissions and halting deforestation.
Clearly the world is currently not on this path. How many ways are there to say the world is
heading for hard times? As citizens, we must push for more aggressive climate policy, both at a
national and international level. As investors, we must begin to monitor effects of climate change
and begin considering them when we evaluate risk.

15. 14
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