Working Paper: NBER ID: w31356
Authors: Raghuram Rajan; Rodney Ramcharan
Abstract: We study how the availability of credit shaped adaptation to the long 1950s US drought. We find that investment in irrigation increased substantially more in drought-exposed areas with access to bank finance. The spillover effects of farmers’ ability to adapt to the drought through financing, thus preserving agricultural livelihoods, also lead to the greater survival of retail and manufacturing businesses. Overall, areas with greater access to financing suffered significantly less population decline, both in the short- and long term. Thus, enhancing access to finance can enable communities to adapt to large adverse climatic shocks, and limit migration.
Keywords: Credit availability; Climate adaptation; Drought; Bank lending; Population growth
JEL Codes: G0; J0; Q0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| credit availability (G21) | population growth (J11) |
| drought exposure (Q54) | population growth (J11) |
| drought exposure (Q54) | live births (J13) |
| emigration from drought-affected areas with limited credit access (O15) | demographic decline (J11) |