Within but Without: Involuntary Displacement and Economic Development

Between 1995 and 2010, China's Three Gorges Dam uprooted more than one million people, resulting in the largest involuntary displacement from dam construction in history. This paper provides the first evidence of the causal impact of dam-induced inundation on migration and labor market outcomes by combining micro-level census and satellite data. Using a novel identification strategy and remote sensing techniques to capture exogenous variations in flooding intensity, I find that inundation has imposed large and enduring costs on the local economy. Rising water levels in the dam's reservoir displaced between 1.5 and 1.9 million people. Most migrants in partially flooded counties relocated to other towns or villages within the same county. Flooded counties saw a steep and persistent decline of employment by 30 to 50 percent in the manufacturing sector and capital-intensive occupations, and the effects were more harmful to residents that did not move. In the long run, the decline in manufacturing was partly offset by reallocating workers to agriculture. Industrial firms in flooded counties responded by downsizing the workforce and reducing compensation. Overall, these findings highlight the need for policy evaluations to carefully weigh the broad benefits of infrastructure against the concentrated costs to local communities.