The dynamic effects of monsoon rainfall shocks on agricultural yield, wages, and food prices in India^*

Abstract

This paper shows that, first, the effects of monsoon rainfall shocks on agricultural yield in India are highly asymmetric: yield falls strongly after droughts, whereas excessive rainfall has only little effects. Second, our key novel finding is that the short‐lived yield loss after a widespread drought elicits a persistent decline (increase) in wages (food prices), which lasts for up to five years. Third, affiliation to the same National Sample Survey region (and thus to the same state) seems to be a key determinant of internal migration, whereas distance appears more relevant for food arbitrage trading.

Water and development in the Asian tropics, 1900–1939

“…These studies go further and suggest higher levels of productivity in deltas and canal-fed regions than those in the arid parts (Heston, 1983). Major contributions by development economists suggest that weather shocks significantly affected agricultural efficiency and income in major parts of India, and other high-risk tropical economies, during the last two decades (Brey & Hertweck, 2023;Jayachandran, 2006). 32 The increasing sensitivity of low-yield crops to weather shocks in our results suggest that drought tolerance was declining over time.…”

“…1 Literature on micro-level precipitation patterns and growth tends to focus both on the period after 1960 and on individual economies with few cross-country comparisons. See Brey and Hertweck (2023) for a study on India. When water is discussed in comparative economic history, the discussion tends to focus on disease and settlement patterns (Acemoglu et al, 2001;Engerman & Sokoloff, 2000;Gallup & Sachs, 2001).…”