The Effects of Climate Change on Labor and CapitalReallocation

Paula Bustos (CEMFI, Madrid)

16 mai 2022, 11h00–12h15


Salle Auditorium 4

Environment Economics Seminar


We study the effects of climate change on labor and capital reallocation across regions, sectorsand firms. We use newly digitized administrative reports on extreme weather events occurredin Brazil during the last two decades and a meteorological measure of excess dryness relativeto historical averages to estimate the effects of droughts in the local economy of affected ar-eas, on the magnitude of the labor and capital flows they generate and on factor allocationin destination regions. We document two main results. In the short run, local economies in-sure themselves against negative weather shocks via financial integration with other regions.However, in the long run, affected regions experience capital outflows driven by a reduction inloans, consistent with a permanent decrease in investment opportunities. Second, we find thatabnormal dryness affects the structure of both the local economy and the economy of areasconnected via migrant networks. Directly affected areas experience a sharp reduction in pop-ulation and employment, concentrated in agriculture and services. While local manufacturingabsorbs some of the displaced workers, these regions experience large out-migration flows.Regions receiving climate migrants expand employment in agriculture and services, but notin manufacturing. Using social security data, we provide evidence that labor market frictionsdirect migrants to firms connected to migrant social networks, which are mostly outside themanufacturing sector. This has implications for the composition of economic activity and thefirm size distribution in destination regions.

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