Abstract

Migration is widely recognized as a key mechanism for adapting to climate change. However, in many developing countries, liquidity constraints limit households’ ability to migrate in response to climate shocks, resulting in spatial misallocations of labor that hinder economic development. This paper quantifies the economic costs of these misallocations. Using reduced-form estimations, we start by documenting heterogeneity in migration response to drought according to the income level, which is consistent with the liquidity constraint hypothesis.

Then, we develop a quantitative spatial model of migration and trade by combining satellite and census data. We find that by 2050 over 50 millions potential migrants will be trapped by climate change. This represents a welfare loss of 11.4% for the African economy. Our results further highlight how liquidity constraints amplify the spatial heterogeneity in the impacts of climate change across and within countries of the region.

Practical information