What Is the Impact of Weather Shocks on Prices? : Evidence from Ethiopia
The impact of drought on household welfare is the cumulative effect of crop losses and price changes in a local economy that are triggered by these initial losses. This paper combines data on monthly grain prices and wages in 82 retail markets over...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2020
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/840771599657255297/What-is-the-Impact-of-Weather-Shocks-on-Prices-Evidence-from-Ethiopia http://hdl.handle.net/10986/34475 |
| Summary: | The impact of drought on household
welfare is the cumulative effect of crop losses and price
changes in a local economy that are triggered by these
initial losses. This paper combines data on monthly grain
prices and wages in 82 retail markets over 17 years with
data on district-level weather shocks to quantify the impact
of drought on local prices and how this impact varies by
month after harvest. The results show that price increases
occur immediately after the completion of harvest and then
dissipate so that inflationary effects are quite low during
the lean season, contrary to commonly held views. The impact
of shocks on prices is quite low now in Ethiopia -- 4
percent at its peak post-2005 compared with 12 percent
before 2005. In areas of the country where infrastructure
investments have been high, there is now almost no
inflationary impact of drought on prices. It is not clear
whether it is infrastructure investments or something else
that has driven that, but it shows that it is possible for
rainfall shocks to have no inflationary impacts in low
income economies. Inflationary impacts were also reduced
more in districts where the Productive Safety Net Program
was introduced. Comparing inflationary effects in districts
with food versus cash transfers suggests that cash transfers
do not have inflationary effects on grain prices during
times of drought. |
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