Market Participation, Weather Shocks and Welfare: Evidence from Malawi

This paper explores the interaction between climate shocks, market regimes choices and welfare outcomes using Malawi's panel household data combined with long-term historical climate records. The study first examines how climate variability affects household market participation regime and then estimates the impact of market participation on several measure of household welfare. This study also provide a comprehensive picture of how market participation impacts household welfare in the wake of climate variability. The possibility for households to self-selection in a specific market regime is addressed through a multinomial endogenous treatment model. We find that rainfall variability is a push factor for Malawian household farmers who are more prone to participate in the market in order to guarantee their assets against the adverse effects of rainfall uncertainty. Furthermore, being a net seller is, on average, empirically associated with an increase in total and food consumption. The heterogeneity checks support the average results, in particular for female-headed households and large landowners. However, they also highlight that being net-sellers is associated with greater welfare only in Malawi s central region while in the northern and the southern regions, being net-buyer accrues a greater consumption. Furthermore, the net-sellers welfare superiority disappears in the wake of anomalous low rainfall events. Acknowledgement