Climate Change Impacts on Household Income in Pakistan: An Empirical Analysis

Abstract

As climate change continues to pose a significant challenge globally, this study examines its impact on household income, delineating the differential impacts across agricultural and non-agricultural sectors in Pakistan. Utilizing household data from 2020 for 156,440 households across 126 districts of Pakistan, along with climate variable data spanning from 1961 to 2020, the research employs multiple regression analysis with robust standard errors to explore these impacts. The findings reveal that changes in the mean values of temperature and precipitation, as well as the variability of these climate variables, have a statistically significant impact on household income. Specifically, a one-degree Celsius rise in average temperature leads to a 3.3% decrease in income for households in the agricultural sector and a 0.4% decrease for those in non-agricultural sectors. The variability in temperature, indicated by a one-degree increase in its standard deviation, similarly results in a 4% income reduction for households across both sectors. Conversely, a one-decimeter increase in average precipitation is associated with a modest income increase of 0.33% and 0.19% for the agricultural and non-agricultural sectors, respectively. However, greater variability in precipitation adversely affects income in both sectors. The research highlights the vulnerability of households, especially those in agriculture, to climate change and shows non-agricultural sectors are also affected. It offers insights into climate change's economic impacts and suggests developing targeted policies to improve adaptation and resilience.