Rainfall Variability and Household Saving Decisions: Panel Evidence from Rural Ethiopia

Abstract Book of the 11th International Conference on Research in Management and Economics

Year: 2026

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Rainfall Variability and Household Saving Decisions: Panel Evidence from Rural Ethiopia

Mohammed Beshir, Dr. Franklin Amuakwa-Mensah, Dr. Hailu Elias

ABSTRACT:

In this paper, we combine two waves of household survey data with satellite rainfall data to gauge and analyze the extent to which household savings respond to rainfall variability in rural Ethiopia. A sizable portion of respondents (i.e., 41%) have zero savings for the entire year, which may emanate not only from a lack of resources but also from the behavioral and psychological attributes of households. Hence, we use a panel double-hurdle model where, in the first stage, households decide whether to save or not, and in the second stage, how much to save. We find that rainfall variability fails to affect the probability of savings significantly. However, conditional on households’ decision to save, an increase in the previous year’s main season rainfall variability by one standardized deviation reduces savings by 9.5%. We also witness strong evidence of sale of livestock in response to rising rainfall fluctuations, which has the potential to compromise future production capacity. Hence, in order to cope with adversaries of realized rainfall shock and strengthen future resilience, it is essential to expand the outreach of formal financial institutions that can offer rural households credible and efficient alternatives, such as modern credit services.

Keywords: Savings, Rural Households, Rainfall Variability, Double Hurdle Model