Vilfredo Pareto Research Seminar
Paula Bustos

The Effects of Climate Change on Labor and Capital Reallocation

Paula Bustos, Associate Professor at CEMFI
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Maison de la paix (Geneva), Petal 1 Room S5 (hybrid)

This seminar is held jointly with the Geneva Trade and Development Workshop (GTDW).

The Vilfredo Pareto Research Seminar is the Economics department's weekly seminar, featuring external speakers in all areas of economics.

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As part of the Vilfredo Pareto Research Seminar series, the International Economics Department at the Graduate Institute is pleased to invite you to a public talk given by Paula Bustos, Associate Professor at CEMFI.

She will present her work, joint with joint with Christoph Albert and Jacopo Ponticelli, titled The Effects of Climate Change on Labor and Capital Reallocation.

Abstract: We study the effects of climate change on labor and capital reallocation across regions, sectors and firms. We use newly digitized administrative reports on extreme weather events occurred in Brazil during the last two decades and a meteorological measure of excess dryness relative to historical averages to estimate the effects of droughts in the local economy of affected areas, on the magnitude of the labor and capital flows they generate and on factor allocation in destination regions. We document two main results. In the short run, local economies insure 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 in loans, consistent with a permanent decrease in investment opportunities. Second, we find that abnormal dryness affects the structure of both the local economy and the economy of areas connected via migrant networks. Directly affected areas experience a sharp reduction in population and employment, concentrated in agriculture and services. While local manufacturing absorbs some of the displaced workers, these regions experience large out-migration flows. Regions receiving climate migrants expand employment in agriculture and services, but not in manufacturing. Using social security data, we provide evidence that labor market frictions direct migrants to firms connected to migrant social networks, which are mostly outside the manufacturing sector. This has implications for the composition of economic activity and the firm size distribution in destination regions.


About the speaker

Paula Bustos is an Associate Professor at CEMFI. She is also a member of the Council of the European Economic Association and a CEPR Research Fellow. Her research interests include international trade and economic development, and she has examined the impacts of agricultural technologies and financial windfalls on the spatial patterns of structural transformation. She holds a BA and MA in Economics from the Universidad Torcuato di Tella and a PhD. in economics from Harvard University.