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Policy Research Working Paper The Distributional Impacts of Climatic Variabilityon Welfare in Thailand Sailesh TiwariEmmanuel SkoufiasVarun Kshirsagar Policy Research Working Paper11253 Abstract decrease welfare and increase inequality at the national leveland in both urban and rural areas. There is considerablevariation in the extent to which access to social assistanceand credit programs in their current configuration mitigatesthe negative impacts of rainfall shortages on welfare andprevents increases in inequality. Investing in irrigation infra-structure and strengthening the insurance components ofsocial protection and credit support programs, such as the This paper uses cross-sectional surveys of households over2007–21 from Thailand’s Socio-Economic ExpenditureSurvey to conduct one of the first investigations of theimpacts of climatic variability on two key statistics charac-terizing the distribution of welfare in Thailand: the meanand the variance (or inequality). It shows that historicallyhigher rainfall is positively associated with the mean levelof welfare, as measured by household consumption expen- The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about developmentissues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry thenames of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those The Distributional Impacts of Climatic Sailesh Tiwari,2Emmanuel Skoufias,3and Varun Kshirsagar4 Key words: climate change, poverty, vulnerability, shocks, inequalityJEL classification: Q54, I31, D63 1. Introduction There is a general consensus that the process of climate change is associated with increasedclimatic variability and more variable weather (IPCC, 2012; Thornton et. al., 2014).5 Withmillions of poor households in rural areas all over the world dependent on agriculture, there is In this paper we study Thailand to understand better how climatic variability, defined asdeviations from the mean climate state over a medium time scale, such as a few months duringthe growing season, impacts the average level of welfare and the inequality of its distribution.Agriculture makes up about 10 percent of Thailand's GDP, with rice serving as a staple food,key employer, and top export earner for the country. As of 2017, 5.8 million households wereengaged in the agriculture sector and 30.7 percent of the total labor force (Attavanich, 2018). Assuch, unusual weather in the growing season can affect agricultural yields, incomes and welfare The extent to which household welfare and its distribution changes as a consequence ofclimatic and weather variability depends on the intensity and frequency of shocks experiencedby households and the risk management strategies households have at their disposal. Forexample, households may undertake ex-ante income-smoothing strategies and adopt lowreturn-low risk crop and asset portfolios (Rosenzweig and Binswanger, 1993). In addition tocrop diversification, households may also use their savings (Paxson, 1992), take loans from theformal and informal financial sector to carry them through the difficult times (Udry, 1994), self-insure through the buying and selling of assets (Deaton, 1992), or send their children to work The success of all these risk management strategies at insuring welfare depends on the type ofshocks experienced. The literature makes the conceptual distinction between covariate andidiosyncratic shocks, with the latter type of shock being more amenable to being partiallyinsured through informal arrangements among households within communities (Dercon, 2002; It is also important to bear in mind that all these risk management strategies for protectingwelfare from income risk often come at a cost (Chetty and Looney, 2006). It is quite difficult todiversify the sources of income without reducing the level of mean income and thus the potentialfor economic growth in the aggregate. Households in developing countries often use inefficient Comprehensive evidence on the welfare impacts through the lens of climate change and climatevariability in Thailand based on nationally representative data is rather scarce. A number of thequestions related to the impact of specific financial institutions, markets for credit and insurance,and government policies on growth, inequality, and poverty at the macro, regional, and villagelevel in Thailand have been carefully examined by Townsend (2011) and his colleagues usingdata from the Townsend Thai Project (Jordan et al. 2013). However, the project’s designconcentrates on specific provinces and regions, which may not capture the full diversity ofThailand's national landscape. In relation to climate change, for example, Felkner et al. (2009)estimate the impact of higher temperatures on rice product