Climate Adaptation

The early work on adaptation to climate shocks in developing countries focuses on agricultural households’ management of risk from uncertain or abnormal rainfall through formal and informal financial markets (see Besley 1995 for a review of this work), labour supply decisions (Fafchamps 1993, Kochar 1999) and labour markets (Bardhan 1983), or migration networks and kinship (Rosenzweig and Stark 1989). This work finds that adaptation is costly in two ways:

1. Ex-ante mitigation responses from risk-averse farmers reduce productivity and profitability (Rosenzweig and Binswanger 1993, Rosenzweig and Wolpin 1993, Morduch 1995 for a review).
2. Ex-post adaptation is not complete, implying that they don’t ensure recovery to pre-shock levels of income or consumption (Fafchamps et al. 1998). 

The early papers theorise production functions, consumption decisions, and constraints to derive testable conditions on responses to weather uncertainty. These are corroborated empirically with fixed effects regressions using household panel data or regressions with controls from cross-sectional data. Recent work improves upon these empirical methodologies by employing randomised control trials (RCTs), quasi-random experiments from physical or policy variation, as well as short- and long-term shocks in weather (as described in the previous section) to evaluate a variety of adaptation and mitigation approaches.

This section summarises what we know about the effectiveness of different adaptation responses to climate events by elaborating on three modes of adaptation: (1) managing climate risk through financial products, (2) building resilience through technology adoption, innovation, and improved practices, and (3) the impacts of government policies.

Credit and insurance

The early approach to climate adaptation as a risk management problem naturally lends itself to evaluating the efficacy of financial products and markets. Here, we expand on the role of credit and insurance in building resilience to weather shocks and the importance of product design in addressing frictions to adaptation. Karlan et al. (2014) show that, in Ghana, access to weather insurance overcomes the downside risk in agricultural settings and leads to increases in the scale of cropping and input investments, enhances revenues, and facilitates consumption smoothing relative to cash grants. The authors find positive effects on cropping investments from insurance, even in the absence of negative weather shocks, and show that farmers are able to crowd-in investments when their weather risks are insured. Lane (2023) further highlights that a novel financial product that provides both insurance and liquidity, by guaranteeing access to credit in the event of a flood, improved ex-ante investments in inputs and ex-post consumption outcomes for farmers in Bangladesh. Despite these positive effects of weather-indexed insurance, the take-up of such products remains low and highly price sensitive (Ahmed et al. 2020, Elabed and Carter 2014, Cole et al. 2013). Possible explanations for the low take-up of such insurance products include low trust, low liquidity to pay premiums, and limited salience of risk when farmers overweight recent events (McIntosh et al. 2019, Casaburi and Willis 2018, Karlan et al. 2014, Mobarak and Rosenzweig 2013).

Meanwhile, the literature considering non-agricultural firms has focused largely on liquidity constraints and credit interventions. De Mel et al. (2012) find that access to capital facilitates recovery and growth for firms exposed to natural disasters. Firms who randomly received access to cash grants recovered to their pre-disaster profit levels approximately 2 years before other affected firms who did not receive the grant. Annan et al. (2023) show that mobile money platforms enable firms to smooth over unexpected temperature and precipitation shocks in Ghana. They also show that if a weather forecast correctly predicts inclement weather on the previous day, then the harm from hot weather is substantially reduced for firms, indicating an ability to adapt. However, this financial avenue for climate adaptation is inhibited when firms face high levels of market competition. Evidence on how climate insurance shapes firms’ decisions remains an underexplored area of research.

The benefits of credit in enabling firms to adapt can also be helpful for those in agriculture who are vulnerable to climate shocks. Macours et al. (2022) find that Nicaraguan households exposed to weather variability are able to offset the negative effects of drought shocks when provided with a bundle of conditional cash transfers with vocational skills training. The authors find that both interventions on their own were also able to improve resilience to droughts two years after the shock, although in different ways – CCT’s enhanced investments in businesses and skills training intensified wage-work and urban migration. For natural disasters, evidence from Bangladesh suggests that forewarning vulnerable households through cash transfers announced in advance of an anticipated disaster allows them to prepare in advance, minimises losses and supports recovery (Pople et al. 2023). Furthermore,, Burgess et. al. (2017) find that bank expansion in rural India mitigates the mortality effects of heat by relaxing credit constraints. 

Technology, practices, and innovation

New technologies and practices are a promising avenue for adaptation in both agricultural and non-agricultural settings. Improved seed varieties that build resilience to excessive rains have been shown to improve productivity and consumption outcomes, especially for more vulnerable groups (Dar et al. 2013). Emerick et al. (2016) show that the use of flood-resistant rice varieties expands cultivation, increases the takeup of modern cropping practices, and boosts the usage of inputs like fertilisers and credit in Eastern India. Eliminating the downside risk with this new technology not only impedes yield losses in the event of a flood but improves yields and farm revenues, even under normal conditions (similar to the results of reducing downside risk from insurance). Glennerster and Suri (2018) illustrate the positive effects of a short-duration, high-yielding rice variety that enables farmers to harvest during the wet season in Sierra Leone. The new rice variety improved yields, consumption, and health outcomes for children below the age of five. However, these positive effects were concentrated among farmers who also received high-touch training that addressed the germination sensitivity of the new seed, highlighting that the upfront costs of learning and adapting practices for new technologies could limit their returns and widespread adoption.

High costs of new technologies (Glennerster and Suri 2018), costly experimentation and learning (Foster and Rosenzweig 1995, Munshi 2004), heterogeneous returns to adoption (Dar et al. 2013, Suri 2011), or the absence of investments in innovations that are appropriate for lower-income countries (Moscona and Sastry 2022) could inhibit the adoption of new technologies that can potentially facilitate climate adaptation. Emerick and Dar (2021) find that bridging the information gap while building farmers’ trust through farmer-field days, where farmers can interact with each other and observe the performance of a new seed, increases takeup by 40%. On the other hand, demonstrating the seed through progressive adopters chosen during participatory village meetings has no effect on adoption. That said, the effectiveness of this approach may be limited if other constraints, like liquidity, hold. For example, Glennerster and Suri (2018) find that providing high-yielding seed varieties for free led to a 97% take up as opposed to full-price offers (21% take up), showcasing the presence of liquidity constraints. 

Practices like crop diversification (Auffhammer and Carleton 2018) or conservation-oriented agriculture involving minimum tillage, mulching with crop residue, and crop rotation (Michler et al. 2019) can mitigate the negative impacts of rainfall shocks. However, their adoption is impeded by lower levels of productivity in normal years making these practices costly. Hultgren et al. (2022) further validate these results and show that practices that adapt to rising temperatures also depress yields during periods of moderate temperatures. They also find that farmers are less capable of adapting to variations in seasonal precipitation, especially in drier and hotter regions. One explanation for the restricted effectiveness of adaptation practices is that weather uncertainty skews farmers’ ability to evaluate and adopt the right practices. Burke and Emerick (2016) show that farmers in regions with lower variance in temperature, who could be more likely to diagnose climate change, also don’t make significant adaptive investments to subsequent temperature increases.

Short-term adaptation approaches may sometimes bear other adverse consequences, for example, Fishman (2018) and Taraz (2017) show that while irrigation can somewhat offset the effects of variable precipitation, depleting groundwater levels leave agriculture more vulnerable to shocks in the longer run (Hornbeck and Keskin 2014). The returns to adaptive technologies such as irrigation can also be a function of frictions in other markets such as labour markets, leading to the substitution of inputs across space that discount the benefits of the technology as an adaptation strategy, making its adoption inefficient (Jones et al. 2022). Additionally, transitioning to non-agricultural sectors as groundwater wells run dry may be an incomplete and costly form of adaptation (Blakeslee et al. 2020).

Therefore, changing agricultural practices alone is not sufficient, but equipped with the right bundle of innovations, information, incentives, and insurance, new technologies and practices can be a powerful tool to mitigate climate risks. Encouraging locally-relevant agricultural innovations and building a policy space that facilitates their adoption are critical components of building local resilience (Suri and Udry 2022, Lybbert and Sumner 2012). 

Recent work has also tested how firms can adapt to weather and climate shocks. Adhvaryu et al. (2020) find that adopting LED lights improves worker productivity in garment factories by lowering the ambient temperature, indicating that climate mitigation technologies (e.g. energy efficient lighting) can also aid adaptation in this case. Furthermore, workers themselves may adapt to growing heat by taking more breaks, which impacts aggregate productivity (Masuda et al. 2021). Air conditioning is another way for households to adapt to rising temperatures and reduce thermal discomfort, although its high costs imply concentrated adoption among richer households (Randazzo et al. 2021, Pavanello et al. 2021) and long-term consequences on burdening the electricity grid (Davis and Gertler 2015). While technological improvements can aid adaptation, innovation in this space remains limited, with the share of climate adaptation inventions in 2015 roughly the same as those in 1995 (Glachant 2020).

Governance and socio-economic policy

Greenstone and Jack (2015) categorise four components that determine the effectiveness of climate response, especially in developing countries: low-income levels, high costs of adaptation, political economy considerations, and market failures. Government policy is potentially a formidable tool that can shape and manipulate these components. To this end, Kahn (2005) finds that economic development and higher-quality institutions (as measured by a democracy measure, inequality, ethnic fragmentation, and the World Bank’s good governance index) reduce deaths from natural disasters using cross-country panel data from 73 countries. 

Large-scale infrastructure investments are a major portion of government public good provision in low- and middle-income countries, with over 80% of all infrastructure investments being state-financed and close to half of these being transport expenditures (Foster et al. 2022). Investments in transport and connectivity can mitigate the impacts of extreme weather through trade and market access channels. Burgess and Donaldson (2010) find that the colonial-era expansion of railroads in India curtailed the likelihood of famines caused by low rainfall by slashing transport costs for domestic trade. Seasonal floods in Nicaragua reduce labour market income by 18%, but building bridges to connect areas cut off by the floods eliminates this effect by improving labour market activity, farm investments, and household savings (Brooks and Donovan 2020). Apart from these market channels that facilitate recovery, infrastructure investments can also improve first responses to climate shocks. Del Valle et al. (2020) find that Mexico’s indexed disaster fund allowed less-resilient municipalities to recover faster after a natural disaster, and Del Valle (forthcoming) finds that this fund also accelerated the reconstruction of infrastructure and mitigated mortality effects, especially in areas with accessible medical facilities. While the indexed disaster funds provide a novel way to build contingent liquidity for governments to deal with disasters, effective infrastructure investments are costly and difficult to implement, especially in rural areas.

Safety nets provided by social protection policies may mitigate the costs of climate shocks for vulnerable, poorer populations who otherwise lack the wherewithal to cope. Garg et al. (2020) show that workfare programmes, such as the employment guarantee programme in India, can attenuate the negative effect of rising temperatures on children’s learning by supplementing household income. Liquidity transfers are, however, not a universal solution to facilitating climate resilience. Banerjee and Maharaj (2020) find that providing last-mile healthcare through community health workers in India was more effective in suppressing the negative impacts of rising temperatures on infant mortality than income gains from the same employment guarantee programme in India. Garg et al. (2020) also show that even though cash transfers attenuate homicide crimes that are driven by rising temperatures in the short run, the homicide rate reverses back to its original levels within 5 years of receiving access to a Progresa grant. More work needs to be done to understand the impacts of transfer programmes over time, when cash transfers are effective, and how social policy can be bolstered to equip vulnerable communities to face climate shocks. 

A fundamental consideration in discussion of the government’s role in building climate resilience is whether their own incentives are (1) aligned with promoting climate adaptation, and (2) flexible to respond to changing climate conditions. Government responses to weather shocks can also be driven by political economy concerns that operate during times of vulnerability from climate shocks (Mahadevan and Shenoy 2023, Tarquinio 2023, Bobonis et al. 2022, Fitch-Fleischmann and Kresh 2021, Cole et al. 2012). Coordination problems between sub-national jurisdictions persist, leading to continued negative externalities that depreciate essential resources like clean air, water, and forests (Dipoppa and Gulzar 2023, Bhogale and Khedgikar 2023, Burgess et al. 2012). 

Therefore, recent literature highlights the progress in climate adaptation methodologies and sheds light on financial, physical, and policy instruments that are effective. However, a number of these come attached with short-term costs and uncertainty about long-term benefits. Climate adaptation, along with our understanding of what works, still remains substantially incomplete. In the next section, we review recent work on quantitative spatial general equilibrium models and climate change adaptation.

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