Drenched Fields and Parched Farms: Evidence along the Extensive and Intensive Margins

Abstract

In this paper, we explore how rainfall variability impacts agricultural production along two margins: the intensity of output (yields) and the extensiveness of production, and how water infrastructure influences this relationship. Using global, gridded datasets on net primary productivity (NPP), land cover, and weather, we find that, on average, contemporaneous wet shocks tend to increased agricultural productivity. Contemporaneous dry shocks decrease crop productivity, while repeated dry shocks also tend to increase the rate of cropland expansion, perhaps as an adaptation technique to compensate for lower yields. We argue that the theoretical underpinnings for these results can be found in the “safety-first” model, where the priority of the economic agent is to generate a threshold level of income or output. Further, using an instrumental variables based identification strategy for irrigation infrastructure, we find that the buffering impact of upstream irrigation infrastructure varies by geography, climate, and income levels. Upstream irrigation infrastructure, in general, decrease the extent of cropland expansion to persistent dry shocks across different income levels, yet in developing countries, they appear to accentuate the adverse effects of dry shocks on agricultural productivity. One reason for this relationship which we find evidence for is mal-adaptation, where the presence of irrigation infrastructure incentivizes farmers to plant water-intensive crops.