SCARCITY AND ABUNDANCE: ESSAYS ON DROUGHT, FOREST RENTS AND ECONOMIC WELFARE

Ballav Aryal

The effects of drought on agriculture are heterogeneous across crops and geographic regions, which makes drought measurement critical in estimating these effects. Most prior studies measure drought using precipitation and temperature anomalies. I develop a surface water supply index (SWSI) using snow water equivalent, streamflow and reservoir storage data at the sub-basin level, and map it to counties in Arizona, California, Oregon, and Washington. Then, I empirically test the effect of SWSI on acreage, prices, yield, and revenue for crop categories based on long-run economic value using data from the last five Census of Agriculture years. The results suggest that revenue effects of surface water drought are the most severe for the mid-tier crops as their price and yield both decline, muted for the highest value crop category and more ambiguous for the lowest value crop category. The effects of drought on perennial crops may extend beyond the drought year. Using a dynamic programming framework, I model this persistence of drought stress in perennials and investigate the effects on profitability. Specifically, I simulate optimal perennial shares and profits when farmers account for drought stress persistence in their decision-making and when they do not. I show that the effect of not accounting for drought stress persistence is economically consequential. Further, I use field experiment data on almonds in Spain to calibrate a drought stress persistence parameter and show that the results hold in the calibrated simulations as well. Natural resource rents can provide fiscal space for a country to increase public investment. I explore whether higher forest rents are associated with greater public education spending and, in turn, lower poverty. Using a recursive instrumental variables model, I examine this pathway using World Bank data for 199 countries from 1970 to 2024. While I find support for this channel in the full sample analysis, a pooled interaction model shows no significant relationship between forest rents and public education spending in countries with either low or high levels of forest rents. However, I find that the public education spending has a significantly larger poverty-reducing effect in countries where forest rents are high.

SCARCITY AND ABUNDANCE: ESSAYS ON DROUGHT, FOREST RENTS AND ECONOMIC WELFARE

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