Social Capital, Income Diversification and Climate Change Adaptation: Panel Data Evidence from Rural Ethiopia

David Wuepper, Habtamu Yesigat Ayenew, Johannes Sauer

Research output: Contribution to journalArticlepeer-review

41 Scopus citations

Abstract

The choice between specialisation and diversification of income is driven by multiple, interacting factors, such as economies of scale and scope, risk considerations, context, and household characteristics. Using panel data from Ethiopia, we investigate the role of social capital and the covariate risk of climate change and their interaction. We find that households with greater social capital tend to be more specialised, implying that diversification and informal insurance are substitutes in the mitigation of risk. We also find that this effect is significantly weaker in regions more prone to climate change, which is consistent with the average farmer being aware that informal insurance is not an effective protection against risks that affect the entire social network. We use instrumental variable random effects estimation to account for the plausible endogeneity of social capital and we also establish that our results do not depend on the poorest and most constrained individuals in our sample.

Original languageEnglish
Pages (from-to)458-475
Number of pages18
JournalJournal of Agricultural Economics
Volume69
Issue number2
DOIs
StatePublished - Jun 2018
Externally publishedYes

Keywords

  • Adaptive capacity
  • Ethiopia
  • climate change
  • diversification
  • social capital
  • specialisation

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