Examining the Economic Impacts of Climate Change on Net Crop Income in the Ethiopian Nile Basin: A Ricardian Fixed Effect Approach

Abstract

Climate change affects crop production by distorting the indestructible productive power of the land. The objective of this study is to examine the economic impacts of climate change on net crop income in Nile Basin Ethiopia using a Ricardian fixed effect approach employing the International Food Policy Research Institute (IFPRI) household survey data for Ethiopia in 2015 and 2016. The survey samples were obtained through a three-stage stratified sampling technique from the five regions (Amhara, Tigray, Benishangul Gumuz, Oromia, and Southern Nation Nationality and People (SNNP) along the Nile basin Ethiopia. There are only 12–14% female household heads while there are 80–86% male households in the regions under study. In the regions, more than half of (64%) the household heads are illiterate and almost only one-tenth of them (12%) had received remittance from abroad from their relatives or children. Crop variety adoption rate is minimal, adopted by the 31% of farmers. Only 30% of the surveyed farmers mentioned that they planted their crop seeds in row whereas the rest 70% had not applied this method. The regression results from the fixed effect least square dummy variable model showed that literacy, household size, remittance, asset value, and total land holdings have significant and positive impacts on the net crop income per hectare. The regional dummy variables estimate indicated that all the regions are negatively affected by climate change at varying levels. Strategies to climate change adaptation have significant and positive contributions in leveraging the damaging effects of climate change. The results also showed that increased winter and summer temperature and rainfall increase net crop income per hectare. The estimated coefficient of the interaction term of spring temperature and rainfall is significant and negative. On the other hand, while the mean annual temperature is damaging to crops, annual rainfall is beneficial. It can be deduced that, while increased temperature and rainfall in summer and winter increase the net crop income, the converse is true for winter and spring seasons. The study also proposes a specific, context-dependent, farm-level adaptation analysis of how farmers cope with the different climatic impacts of the Nile Basin and maintain the income levels that they have previously enjoyed.