Climate change and agricultural output in Ethiopia: quantifying short-run impacts and poverty implications

Abstract

Most studies on climate change and agricultural output in developing countries assess whether climate variables affect production positively or negatively, without linking these impacts to poverty. Moreover, time-invariant factors such as agro-ecology are usually removed in fixed effects models. To address this limitations, this study employs the Hausman-Taylor estimator, which retains time-invariant variables while relaxing the strict assumptions of random effects, making it suitable when both fixed and time-varying factors shape outcomes. This study examines short-run effects of climate change on crop values and poverty in Ethiopia using Ethiopian Economic Survey data (2011–2015). Results show major declines in crop values: 32.6% for barley, 17.9% for maize, 55.0% for sorghum, 21.9% for teff, and 18.4% for wheat—all are significant at the 1% level, except maize and wheat (5%). Annual crop value losses reach US$75,357 (10.6% of output) in the study districts and estimated US$1.057 billion natiowide. If these losses had been retained as household income, 1.2 million people locally and 3.6 million nationally could have escaped poverty—reducing poverty by 17.55% and 16.6%, respectively. The findings highlight the need for agroecology-based adaptation, including small-scale irrigation and climate-smart agricultural practices, to strengthen resilience and reduce poverty.