The World Bank’s Poverty Reduction and Equity Department released a report yesterday detailing the impact of climate change on economic welfare in rural areas. The report is in line with World Bank President Jim Yong Kim’s concern that changes in climate may have adverse effects on economic development. The report’s authors – Abla Safir, Sharon Faye Piza, and Emmanuel Skoufias – look at the relationship between rainfall and household spending on consumer goods in different regions in the Philippines to determine the magnitude of the effects that periods of drought have on the economic well-being of the country’s rural populations.
Their research demonstrates the growing realization that climate change will have the hardest impact on the populations least able to cope with their effects, namely the rural poor. The report’s topline finding demonstrates that a rainfall decline of one standard deviation leads rural households to reduce their overall consumption by 4%.
Additionally, periods of significantly less-than-average rainfall will impact rural households that are both agricultural and nonagricultural. In other words, drought conditions will hurt those rural households which grow the crops (as yield will decrease) and those who purchase the crops itself (due to higher prices).
These findings are consistent with other recent reports. For example, the Post-Disaster Needs Assessment for the Philippines after Typhoons Ondoy and Pepeng (a joint effort of the World Bank, Asian Development Bank, the Philippine government, and civil society) recently found that large adverse-weather events such as typhoons have slowed GDP growth in the Philippines by 2.7%.
In addition to attempting to chart the economic repercussions of climate change, the World Bank research also tried to identify what community characteristics could insulate its members from the negative economic shocks. Surprisingly, the report found that economic diversification (e.g., areas that had manufacturing and banking sectors in addition to agricultural sectors) failed to protect rural areas from falling consumption. Diverse economies typically weather economic downturns better than less diverse areas, since, for example, banks can easily extend credit to cash-strapped farmers. But in higher-than-average drought conditions, diverse sectors fared no better than their less-diverse counterparts. Evidently, the food shocks are so robust that they can disrupt communities that are not wholly dependent on agriculture.
But the news was not universally negative. The authors found that access to reliable communication (especially landline telephones), transportation infrastructure (especially highways), and market access “decereas[ed] considerably the impacts of rainfall shocks.”
These findings suggest that connectivity to other municipalities and markets could smooth out the effects of rainfall shocks in a particular region. Such a conclusion dovetails with the broad consensus on poverty reduction and economic growth, including investing in transportation and communication infrastructure, adopting better water management strategies (so that surplus rainfall years can compensate for leaner years), and improving insurance and social safety net programs so that the rural poor can obtain needed funds without relying on the private sector, which may charge higher interest rates.
The World Bank research suggests an agenda for further study in other developing world nations. The Philippines data set may be comprehensive, but adopting similar criteria for other developing world nations would increase the robustness of the findings.
There is a role for the United States to play here. Newly installed Secretary of State John Kerry is reportedly planning another diplomacy and development review for the State Department (Secretary Clinton undertook one in 2009). The U.S. should take this opportunity to make a strong argument for the role climate change sustainability should play in economic development assistance to the developing world.
Unfortunately, a lot of the assistance and expertise the U.S. could provide is subject to an unfavorable budget environment. I have written before how the most recent foreign operations bill to come out of the House targeted many of the same development-focused efforts that this World Bank report says is necessary to support human security in the Philippines. Contrast this with the alacrity with which the U.S. is pursuing an expansion of its military presence in the Philippines. If the U.S. can afford to shift a larger security focus to Asia, it should be able to afford to bring a concomitant surge in development aid.