Distributional impact analysis of past climate variability in rural Indonesia

WPS5070 Policy Research Working Paper 5070 Distributional Impact Analysis of Past Climate Variability in Rural Indonesia Outi Korkeala David Newhouse Mafalda Duarte The World Bank East Asian and Pacific Region Poverty Reduction and Economic Management Division October 2009 Policy Research Working Paper 5070 Abstract In rural Indonesia, around 60 percent of workers engage to delayed onset. Overall, delayed onset has minor effects in agriculture and face regular climatic shocks that may on rural households' profit and consumption. For poor threaten their crop production, household income, households, defined as those with average per capita and human capital investments. Little is known about consumption in the lowest quintile, delayed onset the households' ability to maintain consumption in response previous year is associated with a 13 percent decline in to these shocks. This paper uses both longitudinal and per capita consumption. Most of this decline is due to an repeated cross-sectional data to examine the extent increase in household size, however, and delayed onset to which farm profits and household consumption two years ago is positively correlated with consumption. are reduced by delayed monsoon onset, an important The findings suggest that poor households experience determinant of rice production in Indonesia. It also greater volatility but no lasting reduction in consumption investigates whether poor households are more vulnerable following delayed monsoon onset. This paper--a product of the Poverty Reduction and Economic Management Division, East Asian and Pacific Region--is part of a larger effort in the region to understand the effects of climate shocks on households in developing countries. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. The authors may be contacted at dnewhouse@worldbank.org or mduarte@worldbank.org. The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. Produced by the Research Support Team  Distributional Impact Analysis of Past Climate Variability in Rural Indonesia 1 2 3 Outi Korkeala , David Newhouse , and Mafalda Duarte 1 University of Sussex, UK 2 World Bank, Washington DC, USA 3 World Bank, Jakarta, Indonesia Key Words: climate variability, agriculture productivity, household consumption, farm profits We thank Shubham Chaudhuri, Boniface Essama-Nssah, Andy Mckay, Shobha Shetty, Emmanuel Skoufias, and Janne Tukiainen, as well as participants of seminars held at the World Bank Jakarta and Sussex University, for helpful comments. We are grateful to colleagues at CEREGE, the NOAA, and Badan Meterologi Klimatologi and Geofisika for sharing rainfall data, Bastian Zaini and Kathleen Beegle for providing kabupaten codes and expenditure aggregates, and John Strauss for sharing IFLS location data. Outi Korkeala thanks the Yrj