This paper studies the effects of dams, through their changes to river hydrology, on downstream economic growth in both their own country and foreign downstream countries. I combine global satellite and administrative data and construct a novel measure of dam exposure derived from the tributary structure of river networks. I present three sets of findings. First, the effects of dams on economic growth in downstream river-adjacent areas are heterogeneous, as measured by nightlights. Precisely estimated negative effects are found from hydroelectric dams, which form the bulk of dams built in recent years, and on irrigated cropland. Second, although some dams have significant negative domestic effects through their changes to the river flow, the downstream foreign externalities are insignificant on average. However, third, that result masks heterogeneity based on international relations between the upstream dam-building country and the downstream country. By most measures of bilateral relations based on trade, alignment on global issues, or regime type similarity, downstream countries that have little economic leverage on or high coordination costs with the upstream country face significant negative externalities from dams. The externalities are mitigated when bilateral relations swing more in the downstream country’s favor. This paper contributes to the nascent literature on the consequences of surface water changes, and to that on the economic consequences of geopolitics.
