An empirical analysis of the effect of floods on rural agricultural wages across Indian states

Abstract

This study employs a Pooled Mean Group (PMG) estimation method to examine the effect of floods on rural agricultural wages, controlling for key wage determinants for 15 major Indian states over the period 1983–2011. The PMG estimates suggest that damages due to floods have a positive impact on annual agricultural wages and agricultural wages in flood months in the long run but an adverse effect in the short run. In other words, our findings indicate that annual agricultural wages and agricultural wages in flood months increase by 0.164 percent and 0.149 percent, respectively, in the long run, but they decline by 0.025 percent and 0.026 percent, respectively, in the short run when damages due to floods increase by 10 percent. Moreover, we find that better employment opportunities in rural non-agricultural sectors significantly increase agricultural wages in the long run. Our empirical findings are robust to alternative flood measures in terms of area affected by floods. In sum, we conclude that floods have differential impacts on agricultural wages in the short and long run, after taking into account the key wage determinants.