Temperature shocks, short-term growth and poverty thresholds: Evidence from rural Tanzania

Abstract

Using the LSMS-ISA Tanzania National Panel Survey by the World Bank, we study the relationship between rural household consumption growth and temperature shocks over the period 2008–2013. Temperature shocks have a negative and significant impact on household growth if their initial consumption lies below a critical threshold. As such, temperature shocks slow income convergence among households, at least in the short run. Crop yields and total factor productivity in agriculture are the main transmission channels. Extrapolating from short-term elasticities to long-run phenomena, these findings support the Schelling Conjecture: economic development would help poor farming households to reduce the impacts of climate change. Hence, closing the yield gap, modernizing agriculture and favouring the structural transformation of the economy are all crucial issues for adaptation of farmers to the negative effects of global warming.