Multinationals vs Mother Nature? The Impact of Multinational Firms on the Environment

• Agricultural Economics Workshop

Date and Location

Thursday, December 8, 2022, 4:10 PM - 5:30 PM
Online Meeting, Zoom

Abstract

This paper studies the response of agricultural production to rural labor loss during the process of urbanization. Using household microdata from India and exogenous variation in migration induced by urban income shocks, we document sharp declines in crop production among migrant-sending households. Migrant-sending households do not substitute agricultural labour with capital, nor do they adopt new agricultural machinery. Instead, they divest from agriculture altogether and cultivate less land. Based on a two-sector general equilibrium model with crop and land markets we develop an estimation framework that allows us to trace the ensuing spatial reorganization of agriculture. Our results show that the spillovers of rural labor loss lead to a spatial reorganization of agriculture. While migrant households reduce agricultural production, non-migrant households within the same village expand farming and farmers in more remote villages with fewer migration opportunities adopt yield-enhancing technologies and produce more crops. Counterfactual simulations show that over half of the aggregate food production losses driven by urbanization is mitigated by these spillovers. This leads to a spatial reorganization in which food production moves away from urban areas and towards remote areas with low emigration.