The Economist’s latest Free Exchange column tackles trade, urbanization, and climate change adaptation. It describes a recent research simulation in which international barriers to migration impose significant welfare costs in the parts of the world that are particularly vulnerable to climate shocks:
The authors modify the model by introducing a rigid border at the 45th parallel, which runs through the northern United States and across southern Europe, with roughly 1 billion people living above the line and 6 billion below. The model finds that rising temperatures actually benefit the northern section of the globe. Agricultural productivity grows and northern manufacturers enjoy more trade with the throngs that mass just south of the border. Welfare in the south falls, by contrast, by about 5% on average relative to the no-warming case. The model is simplistic, of course, but it suggests that limits on migration have a big effect on the costs of global warming.
The piece also features Paul Romer and the work of UP non-resident scholar Matt Kahn:
Unfettered migration is obviously a lot more likely within countries. But even then, wouldn’t it matter if people left a really productive place for somewhere less dynamic? Real output per person in the New York area is some 70% higher than in Buffalo, for instance; a New Yorker fleeing upstate may suffer a large income loss. Matthew Kahn of the University of California, Los Angeles, reckons that this, too, is manageable. In his book “Climatopolis”, Mr Kahn points out that the productivity of rich places often has little to do with unique geographical advantages. Instead, cities profit as magnets for skilled workers attracted by other skilled workers…
Mr Kahn argues that as the climate warms, vulnerable areas like lower Manhattan will become less desirable relative to rival centres: midtown Manhattan, New York’s suburbs, or Chicago. Rational workers and firms should assess the risk of floods or the like and migrate, raising the productivity of the destination locations as they arrive. The move wouldn’t be costless… Yet Mr Kahn says there could also be gains, as activity shifts from cities with an out-of-date capital stock (like New York’s ageing infrastructure) to more modern areas. The speed of climate change may also help, reckons Paul Romer of New York University, if broader shifts in habitability occur slowly enough to allow a relatively smooth geographic adjustment. But change may be too quick and unpredictable to allow for easy adaptation.
The piece ends on a cautionary note, concerned that government might forestall adaptation by hindering even within-country migration — for example, by continuing to subsidize flood insurance for property owners in vulnerable areas or by erecting barriers to development in the climate-safe cities to which people might otherwise move. The piece raises the possibility of market failure as well: “Areas that lose value as they become riskier may become magnets for poor families seeking affordable housing.”
The entire piece is well worth reading, as is Ryan Avent’s write up at the Free Exchange blog. For more on adaptation and migration, see the VoxEU piece that Matt Kahn and I wrote about climate change and charter cities.