Public works programmes and agricultural risk: Evidence from India

Abstract

AbstractThe agricultural sectors in many low‐ and middle‐income countries remain highly vulnerable to weather risk, a vulnerability that will only intensify under climate change. The globally trending public works programmes have the potential to impact weather‐related agricultural risk. I explore the impact of India's National Rural Employment Guarantee Act (NREGA) on weather‐related agricultural risk. My empirical strategy explores the staggered roll‐out of NREGA and random weather fluctuations. Using a nationwide panel of data, I find that NREGA makes crop yields more sensitive to low rainfall shocks. I posit that these results are consistent with a labour market channel, by which NREGA increases nonfarm labour supply in low rainfall years, and an income channel, by which NREGA leads to riskier agricultural practices. These results highlight the importance of understanding how social protection programmes shape agricultural risk.