Human capital, mobility, and the unequal effects of climate change

I examine the role of human capital in generating mobility across sectors or locations, a potential mechanism for adapting to climate change. I first present new evidence on the negative impacts climate change has had on yields in India across a suite of crops. Using a historical schooling expansion in India, I then provide reduced-form evidence on how human capital facilitates adaptation. Those with greater human capital are more likely to leave agriculture and migrate in response to a worsening climate. To understand these mechanisms in general equilibrium, I develop a spatial structural change model with climate change, endogenous human capital formation, and non-homothetic preferences. Human capital concentrates in cities where demand for local services is higher. As less human capital remains in rural areas, the prospects for adaptation through structural change weaken. Over time, rural areas accumulate less human capital, making them less competitive in markets for human capital. I estimate the model to show the unequal effects of climate change thus far on welfare across space and the income distribution over the past three decades. Welfare gains from avoiding climate change are highest in remote rural areas, precisely where policies for enhancing human capital have the largest effect. Climate change has lowered aggregate welfare by 3% but over 6% in the lowest income quintiles. On the contrary, human capital investments have raised aggregate welfare by 6% and nearly 9% for the least developed districts. To date, human capital has helped offset the effects of climate change in equilibrium.