CLIMATE CHANGE IMPACTS, VULNERABILITIES AND OFF-FARM DIVERSIFICATION AS AN ADAPTATION STRATEGY: EVIDENCE FROM ETHIOPIA

Abstract

Climate change is a worldwide problem with much larger adverse impact on the developing economies. The manifestations such as, extent of vulnerability to climate change and impacts from climate change as well as adaptation capacities to the changing climate are locally varying processes. This thesis presents the results of an investigation of aggregate economic impacts of climate change and local level rural livelihood vulnerability assessment to climate change in Ethiopia. In particular, the vulnerability differences between off-farm diversified and non-diversified rural households in selected rural villages of South Gondar Zone is examined. Along with this, the off-farm growth determining factors and their linkage with the farming sector are investigated. The aggregate economic impact of climate change in Ethiopia is investigated over the period 1960 to 2015 using a simple economic growth model that incorporates climatic variables such as annual rainfall, mean annual temperature and CO2 emission using the Auto Regressive Distributed Lag (ARDL) technique. ARDL bounds testing approach has an advantage of providing explicit tests for the existence of a single cointegrating vector in its single equation setup with a simple implementation and interpretation. The study shows that climate change, captured by rainfall changes mainly its deviations from long-term average and its variability (including high probability of decrease in rainfall), increase in temperature and rise in co2 emission would jeopardize growth in the long-run. The significant negative effect of these climatic variables on GDP is further confirmed by the (Nonlinear Autoregressive Distributed Lag Model) NARDL estimation. However, the NARDL analysis further shows statistically different effects from the positive and negative changes of these climatic variables on GDP. The country, therefore, needs to implement all adaptation strategies strongly towards reducing the negative impacts of climate change. Having the evidence of unidirectional causality flows from climatic variables to Ethiopia’s economic performance; domestic policy responses for climate change that directly hinders domestic economic progress may not be effective. Instead, climate change adaptation policies that help economic progress in parallel are more advisable. In addition, Ethiopia should continue active participation in climate change negotiations at the global level. Local level climate change vulnerability assessment is also conducted on a sample of 323 off-farm diversified and non-diversified rural households in selected rural villages of south Gondar zone of Amhara region of Ethiopia using the integrated livelihood vulnerability assessment approach, namely LVI-IPCC framework and econometric method. The approach is preferable for policy decisions as it allows an explicit examination of the complete picture of vulnerability through integrated analysis of the three major contributing factors. It is revealed that rural household’s livelihood is significantly and adversely influenced by climate shock; particularly poor rural households that do not diversify into any rural off-farm activity are highly vulnerable to climate shock. Income inequality and adaptive capacity differences across rural households are further aggravated by climate change. Therefore, attention should be given for the off-farm diversification as an effective pro-active strategy in place of the usual reactive relief oriented strategy to adapt the exposure from exogenous climate shocks and reduce the adverse impacts of climate change at household level. Irrigation, improvements in the access of water, health and other rural-infrastructure are also found to be indispensable. Effects of climate shock on rural households’ off-farm diversification and earnings along with other determinants are also examined using the Multinomial logit and Tobit models respectively. Empirical results from the Multinomial logit model confirmed that climate shock increases the likelihood of rural households’ off-farm diversification. Rural households that anticipated climate shock are more likely to diversify into off-farm activities. The distinction in rural households’ diversification decision between two mutually exclusive categories of off-farm activities is better explained by other non-climatic variables of the model. Climate shock is the dominant push factor. Most of the off-farm participant rural households’ used the sector as climate shock copying mechanism. The sector is also confirmed as being less climate sensitive than the farming sector. The Tobit model also revealed that determinants of off-farm diversification consistently affect off-farm earnings. The current status of off-farm economy is very low. Lack of capacity is considered to be an important constraint for off-farm participation and earnings. Therefore, rural households’ capacity development in rural infrastructure, irrigation, awareness creation, education and training in off-farm skills among others promote the overall growth of off-farm economy. To generate plausible suggestions on the necessity of promoting rural off-farm sector, economic linkages between farm and rural off-farm sectors are also examined through the explicit evaluation of the effect of rural households’ off-farm diversification and the resulting income on their farm income. The instrumental variable regression method is employed so as to solve the endogeneity problem that occurred due to the reverse causality between farm and off-farm sectors. Significant positive effect or complementary linkage between the farm and off-farm sectors is evidenced. The thesis therefore asserts that off-farm diversification by rural households is an important climate change adaptation option and sustainable source of income that enable to sustain rural livelihood. There is a possibility to promote the off-farm sector without any cost to the farm sector. This inevitably lead to rural development through focusing and working on the positive synergy between the farming and off-farm sectors, instead of concentrating on the farming sector alone.