As a development and labor economist, it’s unusual to see colleagues concerned with the impact of rainfall, full stop, on anything. We’ve become so accustomed to seeing rainfall used as an instrumental variable, a pathway to causal results, rather than a driver of some effect in and of itself. A new working paper by David Levine and Dean Yang (gated), however, looks at rainfall itself, or rather deviations from mean rainfall levels, which is actually pretty important. If we’re going to use rainfall as an instrument, or think of it as an exogenous shock that can be modeled linearly (or non-linearly, but modeled nonetheless), then it’s a good idea to make sure those assumptiosn actually hold.
We estimate the impact of weather variation on agricultural output in Indonesia by examining the impact of local rainfall shocks on rice output at the district level. Our analysis makes use of local meteorological data on rainfall in combination with government administrative data on district-level rice output in the 1990s. We find that deviations from mean local rainfall are positively associated with district-level rice output. 10% higher rainfall leads metric tons of rice output to be 0.4% higher on average. The impact of rainfall on rice output occurs contemporaneously (in the same calendar year), rather than with a lag. These results suggest that researchers should be justified in interpreting higher rainfall as a positive contemporaneous shock to local economic conditions in Indonesia.