Poverty Trap, or Ticket to Economic Growth? Forecasting the Impact of Climate Change on Migration and Global Inequality

If you ask someone about the most relevant global policy issues today, the chances that climate change, immigration, and inequality top his or her list are very high. In the last year, these topics have been in the news and at the forefront of political and academic debates. A recent study linking increases in temperature with the probability of migration may help us better understand how these issues are associated and the impact that this relationship might have on economic growth.

Cristina Cattaneo and Giovanni Peri propose a model to estimate the long-run effects of global warming on the productivity of agriculture and migration flows in poor and middle-income countries. One of the strengths of the study is that it uses data from 115 countries, collected between 1960 and 2000, allowing researchers to understand long-term trends separate from short-run effects, such as a long rainy season.

The hypothesis underlying the model is that a change in temperature that decreases agricultural outputs in low-income countries impoverishes the population that depends on agricultural employment. After excluding OECD countries from the sample, 30 countries with an average yearly per capita income of less than $1,500 in 1990 are classified as low-income. The 85 countries above this threshold are classified as middle-income.

In low-income countries, which are mostly located in sub-Saharan Africa, a decrease in earnings reduces the ability of families to afford the costs associated with relocation. Conversely, in middle-income countries, people typically have enough money, and time, to afford the costs associated with migration. In these countries, a decline in crop yields gives individuals an incentive to migrate.

One assumption of the model is that people can be more productive in other economic sectors that are not explicitly affected by a change in temperature, such as in the service and retail industries. Therefore, the model is a version of an individual cost-benefit analysis where the costs of migration and the current earnings from agricultural work are compared with the potential wages that could be earned after migrating to a new destination.

Controlling for other climate factors such as annual precipitation, droughts, and floods, the authors find that an increase of one degree Celsius in a country’s average temperature increases international migration rates by 27 percent among middle-income countries, and reduces emigration by 86 percent in low-income countries. In the case of low-income countries, people who are dependent on agriculture become even poorer, further decreasing their opportunities to relocate internationally.

On the other hand, in the case of urban-rural migration within a country, a temperature increase of one degree Celsius increases the share of urban populations by four percent in middle-income countries and decreases urban populations by about the same rate in low-income countries.

The implications of these findings for gross domestic product (GDP) are not immediately clear. Diminishing agricultural yields can hurt economic output, but migration can also increase employment levels by filling available jobs in the migrants’ new homes. What, then, is the global effect of migration on GDP in this context? In middle-income countries, these two effects seem to balance out. Diminishing agricultural output hurts the economy, but the relocation of rural workers to more productive urban areas ultimately generates an overall increase in GDP per capita. Conversely, in poorer countries, increased temperatures not only diminish agricultural yields but also decrease the probability of relocation, since poorer people are less able to afford relocation, resulting in a negative impact on GDP per capita. In this model, climate-induced agricultural change seems to be improving the lot of middle-income countries, while poor countries may be caught in an ongoing poverty trap.

This study shows that climate change, economic inequality, and immigration are intertwined. For middle-income countries, the relationship between the three may lead to increased economic opportunities and growth. Nevertheless, the challenge facing policymakers is to find policies that mitigate or avoid the poverty trap induced by climate change in poor countries.

Article Source: Cattaneo, Cristina, and Giovanni Peri, “The Migration Response to Increasing Temperatures.” Working Paper 21622, National Bureau of Economic Research. October 2015

Featured Photo: cc/(Brian Evans)