When It Rains, It Pours: Estimating the Spatial Spillover Effect of Rainfall
42 Pages Posted: 7 Nov 2018 Last revised: 20 Aug 2020
University of Melbourne - Department of Economics
University of Melbourne
Date Written: August 2020, 2020
The Intergovernmental Panel on Climate Change projects that global rainfall variability
is likely to increase due to climate change with dry areas becoming drier and
wet areas experiencing greater rainfall (IPCC, 2014). In this paper, we adopt a new approach
to evaluating the impact of this increasing rainfall variability on rural households.
Central to our approach is the focus on identifying the spatial spillover effect
of rainfall. In particular, we use household-level panel data from India along with
high-resolution meteorological data to show that greater rainfall in neighboring districts,
by raising regional output, has a negative general-equilibrium effect on crop
prices and therefore farm incomes. We show that a 100 mm increase in cumulative
rainfall in neighboring districts lowers rural household consumption by 3.74 percent.
This suggests that greater rainfall, even when it does not lead to floods, can have economically
significant adverse effects on rural households.
Keywords: Rainfall, Rural Households, Climate
JEL Classification: O13, O12, Q54
Suggested Citation: Suggested Citation
University of Melbourne ( email )