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2015-10-13 | project

Access to Finance, Adaptation to Climate Change, and Household Welfare Dynamics

Goal of this project is to contribute to the Ethiopian government’s efforts in identifying and prioritizing pro-poor policies and climate smart strategies in building climate-resilient communities and  promoting a ‘green welfare’ in the country.

Currently, increasing attention is given to how societies, especially in developing countries can adapt to a climate regime. Rural farm households in Africa have been using various traditional adaptation strategies (e.g. multiple cropping, hardy seed lines, mixed farming, reduced fallowing, selling valuable assets, migration etc.). An important step in making the most vulnerable households more resilient to climate change is allowing them to have access to finance and integrating climate change adaptation strategies into poverty reduction strategies. However, the link between access to finance, climate change adaptation strategies and welfare dynamics is not explicitly recognized in the literature. There is a big knowledge gap about the change in adaptation strategies due to changes in credit constraint status and welfare changes and vice versa. This two-way relationship has received little attention despite the vast literature on impacts of different climate adaptation strategies on welfare.

Therefore, this project aims at: (i) exploring the effects of access to finance on farm households’ choice of adaptation strategies to climatic shocks; and (ii) analyzing the dynamics of access to finance, choice of adaptation strategies, and household welfare nexus.

In doing so, we use a rich longitudinal dataset (ERHS) collected from major agro-ecological zones of the country. In terms of analytical framework, we use a combination of qualitative and quantitative approaches including the inverse propensity score weighting and the Difference-in-Differences econometric techniques.

Outcomes of this project are expected to give insights to policy makers in designing policy packages which focus on poverty reduction and environmental sustainability.