AERC Working Paper Series 2025

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Financial Inclusion, Climate-Related Shocks, and Food Security in Ethiopia
(AERC, 2025) Shifa, Muna; Nanziri, Lwanga Elizabeth
In this study, we examine the impact of climate-related shocks on the food security status of households in rural Ethiopia and whether access to financial services can mitigate the adverse consequences of climate related shocks. We use panel data from the Ethiopian Socioeconomic Survey. Climate-related shocks are measured using self-reported shocks, as well as satellite-based weather data. To minimise endogeneity concerns in our regression analysis, we use a panel data correlated random effects (CRE) approach and an estimation approach, which combines a control function approach with the CRE approach. We show evidence of the negative and statistically significant impact of climate-related shocks on food security, meaning that households who have experienced climate-related shocks are more likely to report food insecurity. The findings also show that households that can save money, whether through formal or informal means, are less likely to experience food insecurity. In addition, we show that formal saving helps households reduce the negative impact of climate-related shocks on food security in rural Ethiopia.