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Effects of Extreme Weather on Productivity of Manufacturing Firms in Nigeria
(AERC, 2026) Joshua Olusegun Ajetomobi; Friday Ademola Ajagbe
Rising global temperatures increasingly threaten economic productivity, yet micro-level evidence on how heat affects firms in developing countries remains limited. This study examines how temperature variability affects manufacturing productivity in Nigeria using firm-level data from the 2009 and 2025 World Bank Enterprise Surveys, matched with daily temperature records from the Nigerian Meteorological Agency. A pseudo-panel dataset of 2,075 firms was constructed and linked to regional weather exposure measured as annual counts of days in three temperature ranges: below 25 °C, 25–27 °C, and above 27 °C. Labour productivity is estimated using fixed-effects panel regressions, while total factor productivity (TFP) is analysed through a one-stage structural Cobb–Douglas production function that incorporates temperature directly into the productivity term and corrects for simultaneity using a control-function estimator. Descriptive evidence indicates that Nigerian manufacturing firms operate under persistent heat exposure, averaging about 197 days annually above 27 °C. Regression results show that extreme heat significantly reduces labour productivity: in the preferred specification, an additional hot day lowers productivity by approximately 2.4%. Structural production-function estimates reveal that materials are the dominant driver of output, while labour exhibits diminishing marginal productivity. Temperature effects on TFP are nonlinear, displaying an inverted-U pattern in which moderate warmth may initially raise output but excessive heat reduces it. Interaction results further indicate that labour acts as an adaptive margin, with larger workforces partially offsetting heat-related productivity losses, whereas capital intensity does not significantly mitigate temperature shocks. Overall, the findings demonstrate that temperature influences manufacturing performance primarily through short-run efficiency channels rather than long-run technological change. Persistent exposure to high temperatures therefore poses a structural constraint on industrial productivity, particularly in labour-intensive firms and regions with greater heat intensity. Policies aimed at improving workplace conditions, energy reliability, and firm-level adaptive capacity may be more effective for sustaining productivity under rising temperatures than strategies focused solely on capital accumulation.
Is the Exchange Rate a Shock Absorber or a Source of Shocks? Evidence from South Africa
(AERC, 2026) Trust R. Mpofu
This paper investigates empirically whether the exchange rate in South Africa acted as a shock absorber or a source of shocks over the period 2000Q2-2019Q4 using the data sourced from the IMF’s IFS and FRED. Finding the answer to this question is important because South Africa’s exchange rate is more volatile relative to peers and such exchange rate fluctuations might be good or bad for the economy. The period of the study is to test the shock-absorbing properties of the flexible exchange rate regime following mixed empirical evidence. The study employs a Bayesian structural VAR using sign restrictions to identify supply, demand, and monetary shocks for a three-variable VAR, and supply, demand, monetary policy, and exchange rate shocks for a four-variable VAR. The results show that demand shocks explain most of the variance in the real exchange rate, while other shocks play a small role, which suggests that the exchange rate acted as a shock absorber. The results also show that demand shocks explain most of the variability in the prices. These results suggest that policymakers should monitor and stabilise fluctuations emanating from the demand side given the SARB’s mandate of price stability.
Climate-Smart Agricultural Practices and Gender-Differentiated Food-Nutrition Outcomes: Empirical Evidence from Rural South Africa
(AERC, 2026) Abeeb Babatunde Omotoso; Abiodun Olusola Omotayo
Climate change significantly impacts rural households' dietary outcomes by reducing farm productivity and income, prompting farmers to adopt climate-smart agricultural practices (CSAP) to mitigate adverse effects. This study examines the impact of CSAP adoption on gender-differentiated food security outcomes proxied by the Household Food Insecurity Access Scale (HFIAS) and household dietary diversity score (HDDS) in rural South Africa. Using nationally representative survey data from a baseline assessment conducted in 2023 through the ClimapAfrica Programme, we employed a Multinomial Endogenous Switching Regression (MESR) model to address selection bias and estimate the effects of CSAP adoption on gender-differentiated HFIAS and HDDS. Results show that male-headed households (MHHs) exhibited lower HFIAS scores (11.25) and higher HDDS (9.22) than female-headed households (FHHs), indicating that FHHs experienced greater food insecurity and less dietary diversity. These differences are attributed to gender-based disparities in access to resources such as land, credit, and extension services, education, and off-farm income opportunities. Furthermore, CSAP adoption patterns vary significantly by gender, with MHHs more likely to fully adopt CSAPs (21%) compared to FHHs (11%), while FHHs exhibit higher rates of single adoption (28%) and non-adoption (15%). Additionally, factors influencing CSAP adoption include farm size, cooperative membership, education, and access to credit, with gender-specific variations. Notably, full CSAP adoption positively impacted HDDS and reduced HFIAS across genders, with MHHs experiencing greater gains. Partial and single adoptions also enhance dietary outcomes, albeit to a lesser extent, with MHHs benefiting more from partial adoption due to higher off-farm income and agricultural diversification. The results highlight that while CSAP adoption significantly improves food security, persistent gender disparities highlight the need for targeted interventions that enhance resource access and opportunities for FHHs, thereby fostering greater resilience and sustainable agricultural productivity under changing climatic conditions.
WHEN THE LIGHTS GO OUT: POWER OUTAGE AND FIRM PERFORMANCE IN DEVELOPING COUNTRIES
(AERC, 2026) Addisu A. Lashitew
Severe power outages are widespread in developing countries and can significantly undermine firm performance. This study examines their effects using data from the World Bank Enterprise Surveys (WBES), covering 63,200 manufacturing establishments across 121 developing countries between 2006 and 2019. The results indicate that power outages have different effects on firms that generate their own electricity and those that do not. In response to greater power outages, firms with in-house electricity generating capacity produce a larger share of their own electricity, and subsequently spend more on fuel expenses, but they fail to eliminate revenue losses from power outages. Analysis using difference-in-differences estimation further shows that the adverse effects of power outages are more pronounced in energy-intensive industries regardless of in-house power generation status. This effect is also greater among smaller firms than it is for medium and large enterprises. The results remain robust when alternative specifications are estimated that use different measures of power outage and energy intensity.
Will Improved Financial and Digital Literacy Increase Financial Inclusion For All? Evidence From Sub-Saharan Africa.
(AERC, 2026) Jacob Nunoo; Chei Bukari; Michael Coffie
Despite rapid growth in digital financial services (DFS) supply, adoption across sub-Saharan Africa (SSA) remains low and unequal by gender and location. While existing research predominantly attributes this to demographic and socioeconomic factors, this paper proposes a complementary explanation: that deficits in digital literacy (DL) and financial literacy (FL) represent independent and underappreciated barriers to digital financial inclusion (DFI). Using data from the Financial Inclusion Insights (FII) Survey across Kenya, Nigeria, Tanzania, and Uganda, and employing two-stage least squares regression, dominance analysis, interaction analysis, and Blinder-Oaxaca decomposition, the study tests whether DL and FL independently drive DFI, whether their effects are complementary, and whether these effects extend beyond already-advantaged groups to women and rural dwellers. Three findings emerge. First, both DL and FL causally drive DFI beyond economic circumstances. DL’s effect is five times larger than FL’s (4.2 percentage points vs 22 percentage points), accounting for over 80 percent of explained DFI variance, with their joint effect exceeding individual contributions. Second, literacy effects are not concentrated among urban males: DL benefits women more than men (23.5 vs 21.4 percentage points), with the strongest joint effects among rural and female populations. Third, equalising DL endowments by gender would close 77 percent of the DFI gender gap; equalising by location would close 63 percent exceeding any other single factor. These findings reframe the policy debate: digital skills investment targeting women and rural communities is the most direct lever for inclusive DFI expansion in SSA.

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