Welfare Effects of Catastrophic Climate Events on Mountain Communities

This paper examines the effect of extreme climate events on household welfare, measured by monthly per capita consumption expenditure of households in the mountainous state of Uttarakhand in India, which is one of the global climate hotspots. Utilising the June 2013 flash floods in Uttarakhand as a natural experiment, a difference-in-differences approach is used to compare household welfare between the affected and unaffected districts of this Himalayan state. The paper finds that this flash floods event had led to a reduction in overall monthly per capita consumption expenditure of households in the affected districts. The results are robust across alternative specifications and a battery of controls at the household, and district levels. The overall well-being of a household (measured by monthly per capita consumption expenditure) is lower for households that belong to social minority and/ or are dependent on irregular sources of income. It is also derived that household composition matters for the magnitude of adverse welfare effects. Households with higher shares of female, children and older population are relatively worse off. It is found that the adverse effect of the flash flood is more pronounced for male-headed households, households located in urban areas and households where the head is self-employed. The pre-trends in consumption expenditure are similar for both the treatment and the control districts along with an overall upward trend in average per capita monthly consumption. This suggests that consumption patterns catch-up after the climate shock, which corroborates that the individuals are risk-averse with high discount factors and they smoothen consumption over time. Tailor-made policies for mitigation and adaptation will help strengthen the resilience of communities residing in ecologically fragile mountainous regions.