This paper examines short and long-run impacts of drought on local development in Brazil. Drawing on over 100 years of rainfall data, we construct contemporaneous and historical drought indices for more than 3.5 thousand local areas and combine them with population census data spanning the period 1970-2010. Using a difference-in-differences design, we find that a drought reduces current agricultural value added by 11%, on average. This reduces labor demand. In the short-run wages fall by 3.4 percent; in the long-run employment declines by 12 percent. Drought also induces outmigration from the areas most frequently affected, resulting in population decline.

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