Climate change‐related shocks, assets and welfare outcomes in South Africa

Climate change and its consequences pose significant economic and social challenges around the world. Droughts have frequently afflicted South Africa, with the most recent severe drought occurring in 2015/2016. However, there has been little empirical research estimating the impact of climate‐related shocks on individual well‐being in South Africa. In this paper, we investigate the impact of the 2015/2016 drought on individual welfare. We also examine whether access to assets helps to mitigate the negative effects of climate change‐related shocks on individual welfare. For estimating the impact of droughts on individual welfare outcomes, weather data are combined with individual panel data from the National Income Dynamics Study dataset. We use weather data from meteorological satellites to measure the extent of droughts across the country, and we measure individual welfare using real per capita consumption expenditure. Our estimation results show that the 2015/2016 drought had no significant effect on real per capita consumption expenditure in South Africa. We hypothesise that this is due in part to the structure of the labour market, with few people relying on subsistence farming, combined with social grants and remittances being the primary source of income for people at the bottom of the consumption distribution. Using anthropometric measurements as an alternative welfare indicator, we find that children living in drought‐affected areas had lower weight‐for‐height measurements than those living in areas not affected by the drought. The findings imply that when food prices increased as a result of the drought, households may have chosen welfare‐costly coping techniques such as reducing the quantity and quality of food consumed while keeping overall expenditure the same.