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Shocks and agricultural investment decisions

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  • Newman, Carol
  • Tarp, Finn

Abstract

This study explores the impact of weather shocks on the investment decisions of farmers. We distinguish between the long-term effect of exposure to weather shocks, measured as past exposure to deviations in average rainfall levels, and the effect of weather-related shocks that have recently occurred. We examine how households cope with shocks in the short term, in terms of consumption smoothing and the depletion of liquid assets, and whether over the longer-term shock exposure impacts on household investment decisions and welfare. Our results show that households on average manage to smooth consumption in the face of recent shocks by depleting savings and borrowing. Over the longer-term, households that are exposed to shocks invest less in productive assets leading to lower consumption levels. Moreover, the investment strategies of these households do not appear to pay off once additional shocks occur later on.

Suggested Citation

  • Newman, Carol & Tarp, Finn, 2020. "Shocks and agricultural investment decisions," Food Policy, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:jfpoli:v:94:y:2020:i:c:s0306919219306323
    DOI: 10.1016/j.foodpol.2019.101810
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    Cited by:

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    3. Eva-Maria Egger & Vincenzo Salvucci & Finn Tarp, 2023. "Evolution of Multidimensional Poverty in Crisis-Ridden Mozambique," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 166(3), pages 485-519, April.

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    More about this item

    Keywords

    Rainfall; Weather shocks; Investment; Shock-coping;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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