"Weather Variation and Participation in Rural Non-Farm Enterprises in Sub-Saharan Africa"

Abstract: Many rural households in Sub-Saharan Africa run household-owned enterprises to diversify livelihoods. Weather shocks may increase participation in these small businesses by pushing labor out of agriculture, and can decrease participation by depressing local demand. Using harmonized LSMS-ISA panel data on over 5,000 households in Ethiopia, Malawi, and Nigeria, I estimate how variation in rainfall and temperature affects participation in non-farm businesses. Both contemporaneous and lagged rainfall values exhibit U-shaped relationships with participation, while the effects of temperature variables are insignificant. The pattern is concentrated among enterprises that are dependent on local demand rather than directly linked to agriculture. I also find that households that are less credit-constrained and possess better wealth endowments at baseline are significantly more likely to start household-owned businesses in the face of weather shocks. The results highlight the importance of initial endowments and local demand in shaping climate adaptation and structural transformation policies.