Rainfall Uncertainty and Occupational Choice in Agricultural Households of Rural Nepal

Although agriculture is the main occupation in rural Nepal, evidence suggests that households strive to diversify their sources of income. This paper investigates why this is the case. Using household data from the World Bank and information on rainfall for the various rural districts of Nepal, we find that occupational choice is highly correlated to the uncertainty associated with historical rainfall patterns. Where the head is employed in agriculture, other family members are less likely to choose agriculture as an occupation in districts where rain is more uncertain. Estimates indicate that for a 1 per cent increase in the coefficient of variation of rain, there is a 0.61 per cent decrease in the probability of choosing the same occupation as the household head, where the head is classified as self-employed in agriculture. The negative effect of rainfall uncertainty on occupational choice is less evident in households that have access to credit, and in households with relatively high levels of human capital.