Crops, Conflict and Climate Change

This paper studies the welfare impacts of agricultural shocks on households with detailed heterogeneity, by taking consumption, land, and labor allocation choices into account. The underlying model is quantified with household survey data from 51 developing countries, then used to analyze the welfare consequences of the food price hikes induced by the Russian Federation's invasion of Ukraine and future climate change. Both repress income and exacerbate inequality. War-induced food inflation reduced real household incomes across developing countries by 2.90 percent on average, while changes in yields due to climate change will reduce real incomes by 11.99 percent. The welfare impacts of both shocks vary enormously across the income distribution, with already vulnerable households bearing the brunt of their costs. Poor households suffer losses that are considerably larger and much more dispersed than those predicted by models that do not feature household heterogeneity and rely exclusively on aggregate data.