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Weather and income: effect on household saving and well-being in South Africa

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  • Helena Ting
  • Martina Bozzola
  • Timothy Swanson

Abstract

In countries where rain-fed agriculture constitutes a significant portion of household livelihood, increased weather variability represents a source of vulnerability to stable consumption, food security and household well-being. Weather induced income changes affect household consumption and saving decisions. We evaluate saving and consumption responses to weather variation in South Africa, leveraging a newly available panel of nationally representative households covering the period from 2008 to 2014 and long term climate data. We test our data against predictions of the standard rational consumption model and some of its main extensions (i.e., precautionary saving and myopic consumption), and compare differences among households engaged in agriculture activities versus those that do not. Furthermore, we evaluate the impact of saving on household life satisfaction and health behavior. In accordance with previous literature, we find that households save in response to both transitory and permanent income change, although the proportion saved from transitory income is significantly higher. We find signs of precautionary saving driven by non-agriculture households, while we find stronger evidences of myopic consumption for agriculture households. In addition, we show that a one-unit increase in log-saving from transitory income increases the odds of a unit increase in self-reported life satisfaction of the household head by 14%, and a one unit increase in log-saving from permanent income leads to a 6% increase in hazard ratio of having taken an HIV test. This latter result may indicate that preventative health behavior such as HIV testing requires a stronger inducement than a transitory injection of income. Further research is needed to identify the mechanisms by which saving affect life satisfaction and health seeking behavior in developing countries.

Suggested Citation

  • Helena Ting & Martina Bozzola & Timothy Swanson, 2017. "Weather and income: effect on household saving and well-being in South Africa," CIES Research Paper series 49-2017, Centre for International Environmental Studies, The Graduate Institute.
  • Handle: RePEc:gii:ciesrp:cies_rp_49
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    References listed on IDEAS

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    1. Tullio Jappelli & Luigi Pistaferri, 2010. "The Consumption Response to Income Changes," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 479-506, September.
    2. Ferdi Botha, 2014. "Life Satisfaction and Education in South Africa: Investigating the Role of Attainment and the Likelihood of Education as a Positional Good," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 118(2), pages 555-578, September.
    3. Kerri Brick & Martine Visser & Justine Burns, 2012. "Risk Aversion: Experimental Evidence from South African Fishing Communities," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(1), pages 133-152.
    4. Campbell, John Y, 1987. "Does Saving Anticipate Declining Labor Income? An Alternative Test of the Permanent Income Hypothesis," Econometrica, Econometric Society, vol. 55(6), pages 1249-1273, November.
    5. Richard Blundell & Luigi Pistaferri & Ian Preston, 2008. "Consumption Inequality and Partial Insurance," American Economic Review, American Economic Association, vol. 98(5), pages 1887-1921, December.
    6. Kurukulasuriya, Pradeep & Mendelsohn, Robert, 2008. "A Ricardian analysis of the impact of climate change on African cropland," African Journal of Agricultural and Resource Economics, African Association of Agricultural Economists, vol. 2(1), pages 1-23, March.
    7. Tobias Lechtenfeld & Asmus Zoch, 2014. "Income Convergence in South Africa: Fact or Measurement Error?," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 157, Courant Research Centre PEG.
    8. Kazianga, Harounan & Udry, Christopher, 2006. "Consumption smoothing? Livestock, insurance and drought in rural Burkina Faso," Journal of Development Economics, Elsevier, vol. 79(2), pages 413-446, April.
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    More about this item

    Keywords

    consumption and saving; health behavior; agriculture; climate; Africa; South Africa.;

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • I14 - Health, Education, and Welfare - - Health - - - Health and Inequality
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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