Adaptation to Climate Change in Developing countries

Introduction

The fast pace at which the earth's climate is changing is one of the major challenges of our time. Rising temperatures are expected to reduce agricultural productivity in developing countries, which face uncertain adaptation paths.

Adjustment Mechanisms

The theoretical literature highlights two potential adjustment mechanisms:

1. Reallocation of Economic Activity: This involves a shift towards non-agricultural sectors or colder regions. In the first case, lower agricultural productivity generates a shift in comparative advantage towards non-agricultural sectors and a reallocation of workers from agriculture towards manufacturing and services. However, this path might not be feasible for regions with low manufacturing productivity.

2. Migration: In the second case, the lack of local employment opportunities can lead to migration towards other areas.

Literature Review

There is a rich theoretical and quantitative literature studying the relative importance of each margin of adjustment. However, these predictions are subject to a large level of uncertainty due to the lack of direct empirical evidence. In particular, we lack evidence on how labor and capital market frictions shape the adjustment to climate change.

Current Position

We are now in the position to produce this evidence. The last decade has been unusually hot, leading to many persistent extreme weather events in tropical countries, which triggered adaptation responses.

Project Overview

In this project, we use newly digitized administrative reports on extreme weather events that occurred in Brazil during the last two decades, a new meteorological measure of excess dryness relative to historical averages, and detailed social security and credit registry data to estimate the effects of climate change on:

i) The local economy of affected areas,
ii) The magnitude of the labor and capital flows it generates, and
iii) Factor allocation across sectors and firms in destination regions.