Finance and climate resilience : evidence from the long 1950s US drought

Author / Creator

Rajan, Raghuram

Available as

Online

Summary

We study how the availability of credit shapes adaptation to a climatic shock, specifically, the long 1950s US drought. We find that bank lending, net immigration, and population growth decline sha...

We study how the availability of credit shapes adaptation to a climatic shock, specifically, the long 1950s US drought. We find that bank lending, net immigration, and population growth decline sharply in drought exposed areas with limited initial access to bank finance. In contrast, agricultural investment and long-run productivity increase more in drought-exposed areas when they have access to bank finance, even allowing some of these areas to leapfrog otherwise similar areas in the subsequent decades. We also find unequal access to finance can drive migration from drought-hit finance-poor communities to finance-rich communities. These results suggest that broadening access to finance can enable communities to adapt to large adverse climatic shocks and reduce emigration.

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