Rising Temperature and Rural Household Consumption : Evidence from Longitudinal Data in Colombia

This paper examines the impact of rising temperature on rural household consumption in Colombia by combining high-resolution gridded weather data with a rich longitudinal household survey. Our results show that a one-standard-deviation increase in the average daily rainy months temperature significantly reduces rural household expenditure. By using very granual satellite imagery and famers' self-reported shock data, we establish that changes in crop yields serve as the primary mechanism of transmission through which temperature affects consumption. Our analysis indicates that although rural households respond to these shocks, such responses are insufficient to fully offset temperature-induced income loss. We show that this can be attributed to households having limited access to other risk-coping mechanisms. Furthermore, we find that wealth and rainfall can play a crucial role in mitigating the adverse effects of temperature shocks. Our estimates are robust to various specifications, alternative definitions of rising temperature, and alternative weather datasets