Weather Shocks Research Articles

Gendered impacts of climate change: evidence from weather shocks

Abstract Climate change is a critical challenge of our era, and its effects on human well-being are undeniable. It may not be immediately apparent that its impacts can vary by gender. Drawing from lessons learned during the COVID-19 pandemic, it is clear that a shock can affect men and women differently, due to social norms and pre-existing gender differences. This paper reviews economic studies on how weather shocks—such as floods, droughts, and extreme temperatures—affect a broad spectrum of outcomes, ranging from endowments to economic opportunities and agency. Although specific physiological vulnerabilities exist (e.g. boys are more vulnerable to prenatal shocks, while girls and women are more vulnerable to heat), the most significant gendered impacts stem from pre-existing inequalities and societal responses to these shocks. In regions with a strong preference for boys, families facing resource shortages from shocks might prioritize boys for food and other resources, pull girls from school, marry them off young, or withdraw women from agricultural work so they can focus on household chores. Conversely, boys and men might leave school or migrate to seek alternative income sources during or after such shocks. Without gender-responsive climate policies, climate change is likely to exacerbate existing gender inequalities.

Weather deviations linked to undocumented migration and return between Mexico and the United States

As the world's climate continues to change, human populations are exposed to increasingly severe and extreme weather conditions that can promote migration. Here, we examine how extreme weather influences the likelihood of undocumented migration and return between Mexico and the United States. We used data from 48,313 individuals observed between 1992 and 2018 in 84 Mexican agricultural communities. While controlling for regional and temporal confounding factors, we related individual decisions to migrate to the United States without documents and subsequently return to Mexico with lagged weather deviations from the historical norm during the corn-growing season (May to August). Undocumented migration was most likely from areas experiencing extreme drought, and migrants were less likely to return to their communities of origin when extreme weather persisted. These findings establish the role of weather shocks in undocumented Mexican migration to, and eventual settlement in, the United States. The findings also suggest that extreme weather conditions, which are likely to increase with climate change, promote clandestine mobility across borders and, thus, expose migrants to risks associated with crossing dangerous terrain and relying upon smugglers.

This is going to hurt: Weather anomalies, supply chain pressures and inflation

As climate change accelerates, the frequency and severity of extreme weather events are expected to worsen and have greater adverse consequences for ecosystems, physical infrastructure, and economic activity across the world. This paper investigates how weather anomalies affect global supply chains and inflation dynamics. Using monthly data for six large and well-diversified economies (China, the Euro area, Japan, Korea, the United Kingdom, and the United States) over the period 1997–2021, we implement a structural vector autoregressive model and document that weather anomalies could disrupt supply chains and subsequently lead to inflationary pressures. Our results—based on the monthly data and robust to alternative estimation methodologies—show that these effects vary across countries, depending on the severity of weather shocks and vulnerability to supply chain disruptions. The impact of weather shocks on supply chains and inflation dynamics is likely to become more pronounced with accelerating climate change that can have heterogeneous effects. These findings have important policy implications. Central bankers should consider the impact of weather anomalies on supply chains and inflation dynamics to prevent entrenching second-round effects and de-anchoring of inflation expectations. More directly, however, governments can invest more for climate change adaptation to strengthen critical infrastructure and thereby minimize supply chain disruptions.

Weather shocks affect trade policy: Evidence from preferential trade agreements

AbstractWe show that weather shocks affect government trade policy decisions. We exploit variation in rainfall during the growing season within and across countries to show that weather shocks impact agricultural output and trade. Using information on tariff cuts by commodity from preferential trade agreements signed between 1995 and 2014, we then show that weather shocks that happen during the negotiation period correlate strongly with the size of tariff cuts. When weather shocks increase (decrease) a country's capacity to produce a given crop, its government negotiates a smaller (larger) tariff cut. These results are consistent with a political economy trade model with sector‐specific inputs in which the government places more weight on producers relative to consumers in its objective function. They also reveal that governments update their beliefs about domestic agricultural production capacity in response to weather shocks.

Time-Varying effects of extreme weather shocks on output growth of the United States

This study investigates the impact of a structural shock to a metric of extreme weather, identified using sign restrictions, on output growth (and inflation) in the United States (US) from 1961 to 2022, using a new class of time-varying parameter vector autoregressive (endogenous TVP-VAR) model, whereby the identified structural innovation is allowed to influence the dynamics of the coefficients in the model unlike in traditional TVP-VARs. Our results provided evidence that severe weather shocks adversely affect output growth (and inflation) over the forecast horizon of one- to twelve-quarter-ahead. More importantly, we find that the effect of extreme weather on the US macroeconomic variables is indeed time-varying, with the impacts becoming smaller in recent times, possibly due to improved adaptation to climate change.

Aspirations and weather shocks: Evidence from rural Zambia

AbstractAspirations defined as future‐oriented desires or ambitions, can determine agricultural investments and rural development. Aspirations are shaped by people's social, cultural, and physical environment and can be affected by external factors such as natural disasters. This article addresses the question of how weather shocks can influence individual and community aspirations. Using primary panel data from two survey rounds before and during a major drought in Zambia, we show that such extreme weather events can be associated with adverse impacts on individual aspirations. Further exploratory analyses suggest that aspirations towards assets that are particularly vulnerable to droughts are affected most. We do not find any significant effects of drought on community aspirations.

Insurance, Weather, and Financial Stability

In this paper, we introduce a model to study the interaction between insurance and banking. We build on the Federal Crop Insurance Act of 1980, which significantly expanded and restructured the decades-old federal crop insurance program and adverse weather shocks—over-exposure of crops to heat and acute weather events—to investigate some insights from our model. Banks increased lending to the agricultural sector in counties with higher insurance coverage after 1980, even when affected by adverse weather shocks. Further, while they increased risky lending, they were sufficiently compensated by insurance such that their overall risk did not increase meaningfully. We discuss the implications of our results in the light of potential changes to insurance availability as a consequence of global warming.

Weathering the Storm: Shaping and Adapting in Response to an Extreme Weather Shock in Florida

Weathering the Storm: Shaping and Adapting in Response to an Extreme Weather Shock in Florida

The effects of weather shock on income inequality: evidence from Asia‐Pacific Economic Cooperation (APEC) member economies

This study empirically investigates the dynamic effects of weather shock on within‐country income inequality. Using panel data of 17 Asia‐Pacific Economic Cooperation (APEC) member economies, we estimate impulse responses via the local projection method. Moreover, temperature and precipitation shocks, defined as deviations of temperature and precipitation from their historical norms, are exploited to measure country‐specific weather shocks. The empirical results reveal the following. First, temperature and precipitation shocks deteriorate income inequality measured by the Gini index; these effects are long‐lasting. Moreover, asymmetric effects exist: heat waves and droughts more significantly increase income inequality than cold waves and floods. Lastly, current redistribution policies do not seem to effectively mitigate those adverse effects.

Crop diversification and the effect of weather shocks on Italian farmers' income and income risk

AbstractAgriculture is vulnerable to extreme weather shocks. Climate change increases both the frequency and the intensity of such shocks. To safeguard farmers' income and food production, climate adaptation measures are required. This article aims to examine the effectiveness of crop diversification as an adaptation measure, using Italy as a case study. We apply a control function approach to a panel dataset of 20,790 Italian farms, which considers (i) the crop diversification decision and (ii) the influence of crop diversification on farmers' levels of crop income and income risk. We find that, while specialisation can increase income, crop diversification reduces income risk most effectively when growing four different crops. At this level of diversification, income risk is approximately 29% lower as opposed to monoculture farming. Although the Common Agricultural Policy's greening payments for crop diversification make sense from an ecological and risk‐reducing point of view, we find that they are potentially insufficient to cover the loss of expected crop income from diversification. While crop diversification reduces income risk in general, we find no specific benefit in terms of weather shock‐induced risks. This may be because a price increase following a weather shock buffers its adverse effect. However, identifying the reasons requires further research.

From disastrous heat waves to extreme rains: Effects of weather shocks on entrepreneurship

Using household panel data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey and satellite re-analysis temperature and rainfall data, we present the first study to examine the impact of weather shocks on entrepreneurship. We measure temperature and rainfall shocks at the postcode level, and find that an increase in weather shocks in the previous period is associated with a decline in the probability of self-employment in the next period. We find suggestive evidence that health, cognitive functioning and economic activity are mechanisms through which temperature shocks transmit to entrepreneurship. The key insight of this study is that it is less likely that those directly affected by climate events will act entrepreneurially, at least in the short run.

Understanding uptake and interrelationship of climatic agricultural innovations in rural Zambia: Evaluating seasonal climate forecast use and weather shocks

Understanding uptake and interrelationship of climatic agricultural innovations in rural Zambia: Evaluating seasonal climate forecast use and weather shocks

Method and process towards developing a Health Vulnerability Index (HVI) for Extreme Weather Events (EWEs) for local residents in South Africa

An increase in incidence and amplitude of extreme weather events (EWEs) linked to climate change, has resulted in greater human exposure and vulnerability to weather-related health effects. Increases in the occurrence of EWEs, including storms, flooding, extreme heat and wildfires, will impact health globally, with poor and vulnerable populations disproportionately affected. Vulnerability to EWEs, and the ability to adapt to these weather shocks, are influenced by existing physical, social and political limitations of a given region. As such, developing context-specific health vulnerability indices to inform planning and decision-making for policy makers and citizens alike, should be prioritized. The existence and development of health vulnerability indices in South Africa are limited, therefore, this study provides a foundation from which future indices can build. Mixed methods approaches including evidence and data analysis/synthesis and focus groups are used to understand the interconnections between extreme weather events and human health, including citizens’ understanding of emergent vulnerabilities linked to these events. The methods employed in this study include:•A rapid evidence review (RER) including data extraction identifying health impacts and indicators.•Development of a draft health vulnerability index (HVI) framework.•Focus groups and individual interviews testing the draft HVI for citizen input and framework refinement.

Extreme weather shocks and state-level inflation of the United States

This study investigates the impact of a metric of extreme weather shocks on 32 state-level inflation rates of the United States (US) over the quarterly period of 1989:01 to 2017:04. In this regard, we first utilize a dynamic factor model with stochastic volatility (DFM-SV) to filter out the national factor from the local components of overall, non-tradable and tradable inflation rates, to ensure that the effect of regional climate risks is not underestimated, given the derived sizeable common component. Second, using impulse responses derived from linear and nonlinear local projections models, we find statistically significant increases in the state (and national) factor of overall inflation rates, with the aggregate effect being driven by the tradable sector relative to the non-tradable one, particularly across the agricultural states in comparison to the non (less)-agricultural ones. Our findings have important policy implications.

Weather shocks and pesticide purchases

Abstract This paper investigates whether farmers adapt their pesticide use to cope with weather shocks. Using a unique, exhaustive dataset detailing all active substance purchases per zip code in France between 2014 and 2019, we econometrically explain abnormal pesticide purchase deviations by weather shocks. We identify heterogeneous weather impacts across pesticide types, seasons and locations. Because our analyses suggest limited year-to-year pesticide storage and farmers’ adaptation along other margins, we interpret our estimates as true weather impacts on pesticide use. Our preferred estimates suggest that, ceteris paribus, farmers increase pesticide use by seven to fifteen per cent in 2050 under a RCP4.5 climate change scenario.

The Impact of Weather Shocks on Violent and Property Crimes in Jamaica

Abstract Developing countries face the largest exposure to the negative effects of climate change. However, as temperature and rainfall patterns change, we have a limited understanding of their impact on these countries and the mitigation strategies that may be needed. In this paper, we utilize administrative panel data to examine the impact of weather shocks on violent and property crimes in Jamaica. We find strong evidence that a one-standard-deviation increase in the daily temperature (2○C) increases violent crime by 3.67 percent, due to an increase in the number of murders (3.44 percent), shootings (7.53 percent), and cases of aggravated assault (6 percent). However, our results suggest that temperature changes have no statistical impact on property crime. In addition, we find that a one-standard-deviation increase in rainfall (2 mm) reduces crimes such as shootings (1.53 percent), break-ins (2.27 percent), and larcenies (3.85 percent), but it has a minimal impact on other categories of crime.

Weather, credit, and economic fluctuations: Evidence from China

We constructed an Extreme Weather Index to measure extreme weather risks in China. Analyzing macroeconomic data through a structural vector auto-regression model suggests that a negative weather shock leads to persistently low GDP and credit obtained by non-financial firms. In our regression analysis of a panel of firms listed in China, the negative effects of weather shocks on firm level loans were statistically and practically significant. Further analysis suggests that credit risk and expectations are two important impact channels. A high existing credit risk or low confidence among firm managers, amplifies the negative effects of extreme weather on loans.

Climate and sovereign risk: The Latin American experience with strong ENSO events

Using monthly panel data over the period 2007–2019 for seven Latin American countries, we empirically test the impact of climate shocks, here strong ENSO events (El Niño Southern Oscillations), on sovereign risk. Local Projections are computed to assess the dynamic response of sovereign spreads to ENSO events. Results show that strong El Niño and La Niña shocks lead to a significant increase in sovereign spreads, but with different timing. Strong El Niño shocks are associated with a significant short-term increase in sovereign spreads, while strong La Niña events are associated with a delayed but significant increase in sovereign spreads after a short-term decrease. Thus, our results suggest a potential asymmetry in the effect of these strong ENSO events on sovereign risk. We also highlight high volatility in the dynamics of sovereign spreads, which may reflect an overreaction of investors faced with the high degree of uncertainty generated by the economic and financial consequences associated with strong ENSO events. Complementary time-series estimates suggest that Costa Rica and Peru are especially subject to these effects. Overall, our results provide a warning about the fact that, in the case of Latin American countries, weather shocks associated with strong ENSO events have adverse macroeconomic and financial consequences that can lead to an increase in sovereign risk, hinder their government's ability to act as a ‘climate rescuer’ of last resort, and may be aggravated in the future by climate change.

CLIMATE CHANGE AND HOUSEHOLD ELECTRICITY CONSUMPTION INEQUALITY IN CHINA

Based on the micro-data of China’s Urban Household Survey, this paper investigates the impact of climate change on household electricity consumption inequality by using a two-way fixed effect model. The result reveals that households are more likely to purchase air conditioning (AC) and consume more electricity in response to extreme weather shocks. Furthermore, it is observed that high-income households are better equipped to mitigate the negative effects of extreme weather, as they possess a larger proportion of AC units and are more likely to acquire new ones to cope with extremely high temperatures. Finally, the study finds that extreme weather shocks exacerbate inequality in household electricity consumption.

The effects of precipitation shocks on rural labour markets and migration

ABSTRACT The welfare of workers in rural areas is highly affected by agricultural output volatility, caused in part by weather shocks. A volatile source of income is an important factor in inducing migration. While the impact of rainfall shocks on migration is well studied, the channels through which these shocks affect migration are underexplored. In this paper we study the hypothesis that the labour market is an avenue that carries the effect of precipitation shocks on migration. This paper first establishes the effect of precipitation shocks on the labour market. We use individual-level data combined with station-based precipitation data of Iran at the rural-agglomeration level in a fixed-effects panel-data model to find that workers in agriculture and industry sectors decrease their hours of work in response to negative shocks. We then use a linear probability model to show that negative shocks almost double the probability of migration and labour-migration for young men in Iran. Estimations of this paper indicate that as unemployment rate in rural areas increases, migration out of those regions rises as well. Additionally, controlling for the local labour market conditions at origin captures the impact of shocks on migration, implying the labour market is a channel through which precipitation shocks affect migratory decisions.