When It Rains, It Pours : Estimating the Spatial Spillover Effect of Rainfall

The Intergovernmental Panel on Climate Change projects that global rainfall variabilityis likely to increase due to climate change with dry areas becoming drier andwet areas experiencing greater rainfall (IPCC, 2014). In this paper, we adopt a new approachto evaluating the impact of this increasing rainfall variability on rural households.Central to our approach is the focus on identifying the spatial spillover effectof rainfall. In particular, we use household-level panel data from India along withhigh-resolution meteorological data to show that greater rainfall in neighboring districts,by raising regional output, has a negative general-equilibrium effect on cropprices and therefore farm incomes. We show that a 100 mm increase in cumulativerainfall in neighboring districts lowers rural household consumption by 3.74 percent.This suggests that greater rainfall, even when it does not lead to floods, can have economicallysignificant adverse effects on rural households