Climate and land in turmoil: Welfare impacts of extreme weather events and palm oil production expansion in Indonesia

Climate variability and climate change have become important research topics also in economics. The objective of this thesis is not to forecast the future but to learn from the past by studying how two important climate change-related topics have affected Indonesian households. Delayed monsoon onset, El Niño, will become more frequent with climate change whereas palm oil production is a contributor to climate change. The first essay examines how variability in monsoon onset affects rural households' welfare in terms of household expenditure and farm profits. Using the Indonesia Family Life Survey (IFLS) data I find that households in the middle tercile of the expenditure distribution face the biggest albeit temporary losses from delayed monsoon onset. Half of the expenditure decline is due to increase in household size. Conditional on onset, rainfall intensity has only minor effects. The second essay uses the IFLS data to study how schooling and child labour are affected by delayed monsoon onset. The probability of continuing from primary to secondary school is reduced when a delayed onset coincides with the transition year. In other respects, monsoon onset does not affect education of rural children. However, riskier distribution of rain postpones school entry for young children. Moreover, delayed onset increases child labour. Using district-level data on palm oil production and area planted and national household survey (SUSENAS) the third essay studies the impact of oil palm expansion on household expenditure and health. Instrumental variable estimates exploit the historical production and district forest area as an exogenous source of variation. I find that smallholder production has a weak negative impact on household expenditure but this effect is not present among rural households. More, total production increases incidence of asthma in Kalimantan. The findings suggest that palm oil is not a panacea to increase rural welfare.