Speaker
Description
Against the background of growing climate change-related extreme weather events leading to environmental/natural disasters, we assess the capacity of rural households to manage recovery in developing countries. We investigate this in the context of floods in South India by studying both the extent and patterns of financial damage and the recovery from flood-induced damage.
Using primary data from 600 households before and after the floods of 2018, we find that the majority of the households (66 percent) report suffering financial damage in flood and only 22 percent reported some form of reinvestment to repair or replace flood-induced damage. In this study, we investigate both these phenomena and the factors influencing them in two parts. In the first part, we examine the diverse aspects of flood-induced financial damage. In the second part, we look at the recovery from the extreme weather events which have differential impact in the regions sampled. As borrowing is identified as an important way to manage risks and emergencies by households in developing countries where alternate risk management mechanisms are not available, we examine the role of debt literacy in recovery. Using Ordinary Least Squares and Tobit regressions, we provide evidence that there exists a positive association between debt literacy and reinvestment post-flood (at 10 percent). We find that the relationship remains positive and significant (at 5 percent) in the case of reinvestment in crops and durables. This implies that higher debt literacy might be enabling better access to formal channels of credit for reinvestment. The findings could help policymakers to devise effective risk mitigation and management strategies in the aftermath of shocks in regions lacking formal risk management mechanisms. Informed policies could improve the financial well-being of vulnerable rural households using suitable institutional credit supply mechanisms to support reinvestment.
