When It Rains, It Pours: Estimating the Spatial Spillover Effect of Rainfall

The Intergovernmental Panel on Climate Change projects that global rainfall levels will increase by 8 percent by the second half of the 21st century. The existing literature generally finds that increases in rainfall either have no effects or actually raises agricultural profits and economic growth. Using household-level, panel data from India along with high-resolution meteorological data, we show that these average effects mask the fact that greater rainfall can create both winners and losers. Central to this novel finding is our focus on identifying the spatial spillover effect of rainfall. We show that while greater own-district rainfall raises rural household consumption, greater rainfall in neighboring districts actually has a negative effect on such consumption. While this spatial spillover effect generally attenuates the positive effect of own-district rainfall, households in districts with a low-to-moderate own rainfall shock and a large rainfall shock in neighboring districts may be made worse off from increases in rainfall.