Coping with Climate Shocks: Food Security in a Spatial Framework

IMF Working Papers, August 11, 2023

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Develop a quantitative spatial general equilibrium model with heterogeneous households and multiple locations.
Households endogenously respond to negative climate shocks by:
- drawing-down assets,
- importing food,
- temporarily migrating to earn additional income to ensure sufficient calories.
Coping strategies are most effective when trade and migration costs are low; remote households are therefore more vulnerable to climate shocks.
Food insecure households are more vulnerable because proximity to a subsistence requirement leads them to hold a smaller capital buffer and to dissave more aggressively in response to shocks, at the expense of future consumption.
Calibrated to 51 districts in Nepal.

Annual combined impact of floods, landslides, droughts and storms:
- GDP losses of 2.3 percent.
- Welfare losses of 3.3 percent for the average household.
- Increased the rate of undernourishment by 2.8 percent.
Distributional and spatial heterogeneity:
- Undernourished households experience roughly 50 percent larger welfare losses (relative to non-undernourished households).
- Households in remote locations suffer welfare losses roughly two times larger than in less remote locations: 5.9 vs 2.9 percent.

Simulations illustrate the role of better access to migration and trade in building resilience to climate shocks.
Reduced trade and migration costs improve the effectiveness of coping strategies (importing food, temporary migration), lowering vulnerability for remote and food insecure households.