Impacts of extreme weather events under changing climate on consumption and assets inequality

ZEF online colloquium
April 16, 2020

Climate change and associated extreme weather events are becoming an important factor negatively affecting crop yields, agricultural incomes and rural livelihoods in many developing countries. As a result, exposure to extreme weather events can have substantial feedback loops on economic inequality. Moreover, institutions that help alleviate the adverse impacts of extreme weather events are weak or non-existent in many developing countries where the vulnerabilities to climate change are more acute. Although there is a body of literature on impacts of extreme weather events on relative income inequalities between countries and regions, the impact of climate change on within-country economic inequality has so far received little attention.
This paper analyzed the impacts of extreme weather events on household consumption and assets inequality in Uganda. The study used four waves of a long term household panel data from Uganda (2005-2011). The 2005 wave fell on one of the driest years ever recorded for Uganda, the 2009 wave was during an average rainfall year, while 2010 and 2011 waves were during the wettest years on record. This feature of the dataset provides a natural experimental setting for studying the effects of extreme weather events on economic inequality. Based on both self-reported experiences of extreme weather events (droughts and floods) and actually observed rainfall anomalies, household fixed effects panel model shows that extreme weather events increased asset based inequality (measured as Gini index). A 10% shortfall in the annual precipitation compared to the long-term mean (1960-1990) resulted in a 0.05 points higher assets Gini index, while self-reported exposure to extreme events resulted in 0.03 points higher asset Gini index (both statistically significant at 1%). On the other hand, self-reported exposure to extreme weather events slightly reduced consumption Gini index by 0.01 points (significant at 10%). Similarly, a 10% shortfall in the annual precipitation reduced consumption Gini index by 0.02 points (significant at 1%).

The average consumption and asset based Gini indices were estimated to be 0.36 and 0.66, respectively. The slight decrease in consumption inequality following extreme weather events is likely to be due to consumption smoothening by households at lower end of food consumption and some consumption reduction by those households who had higher levels of initial consumption. The survey data showed that major coping mechanisms were through using savings, consumption reduction, getting non-farm jobs, and seeking assistance from friends, relatives and local government. Since some affected households are using up their savings for coping with the effects of extreme weather events, they have lower funds available for building/replacing their assets, resulting in higher asset inequality. Providing access to saving mechanisms, agricultural commercialization, through higher sales of agricultural produce, as well as other income sources in the form of non-farm jobs, remittances and public assistance to affected households are major policy entry points for reducing asset based inequality. The overall conclusion is that the effects of extreme weather events on asset and consumption inequality appear to be relatively small compared to more structural sources of these inequalities.

Speaker:
Dr. Alisher Mirzabaev is a ZEF Senior Researcher. He works on several projects about the economics of land use and land degradation, climate change impacts and adaptation, and the water-energy-food security nexus which are funded by the Federal Ministry for Economic Cooperation and Development (BMZ) and the Federal Ministry of Education and Research (BMBF). For the The Intergovernmental Panel on Climate Change (IPCC) he contributed to the special report "Climate Change and Land".