Weather, Labour Reallocation, and Industrial Production: Evidence from India

Abstract

Many people in developing countries depend on agriculture for their livelihoods, and as a result understanding the relationship between economic and natural systems is central to environmental and development policy. the author examines the effects of weather on economic activity in India. He combines three levels of data – worker, firm, and district – with high-resolution meteorological data to understand how weather impacts agricultural productivity, industrial production and local labor markets in India. He finds that agricultural laborers manage reductions in labor demand by moving into the manufacturing sector, highlighting the importance of market integration and diversification. They tend to face few impediments in this reallocation of resources, which has a number of surprising benefits: increases in manufacturing productivity, the average wage of permanent manufacturing workers, and the number of items that the firm produces. Based on his findings, he suggests that the reallocation of labor across sectors could significantly offset the economic losses associated with weather-driven agricultural productivity shocks. This paper is a part of a Global Research Program on Spatial Development of Cities, funded by the Multi Donor Trust Fund on Sustainable Urbanisation of the World Bank and supported by the UK Department for International Development