Lakes and Economic Development: Evidence from the Permanent Shrinking of Lake Chad

01.12.2025 14:15 – 15:30

INSTITUTE OF ECONOMICS AND ECONOMETRICS SEMINAR

(Jointly with Federico Haslop (GWU), Roman D. Zarate (UCSD) & Carlos Rodriguez-Castelan (World Bank)

Abstract:

There is a limited understanding of the role lakes play in economic development, despite lakeshore communities representing 40% of the global population. This knowledge gap is critical as numerous lakes worldwide are shrinking due to climate change. To shed light on the future economic effects of climate change through the global lake recession phenomenon that it engenders, we focus on Lake Chad, which used to be the 11th-largest lake in the world. This lake, which was the size of El Salvador, Israel plus the West Bank and Gaza, or Massachusetts, shrunk by 90% for exogenous reasons between 1963 and 1990, providing a historical example of the lake recession phenomenon. The water supply decreased and the land supply increased, generating ambiguous effects. We construct a novel data set tracking population patterns at a fine spatial level from the 1940s to the 2010s for Cameroon, Chad, Nigeria, and Niger -- home to 25% of Africa's population --. Difference-in-differences specifications show much slower growth close to the lake after it started shrinking. These effects persisted two decades after it stopped shrinking, implying limited adaptation. The negative water supply effects on fishing, herding, and farming outweighed the growth in land supply and other positive effects. These results are substantiated using historical data on local economic development, environmental change, infrastructure, and conflict. Given the limitations of reduced-form specifications, we develop a dynamic quantitative spatial model and find aggregate losses of 2.7%, which increases to 10% in Lake Chad areas. The model allows us to study non-local effects, further examine mechanisms, study the role of aggravating and mitigating forces, and quantify the effects of policy proposals aimed at replenishing Lake Chad.

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