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.