Climate Change and State-Building in the World's Most Agricultural Countries

Abstract

While the short run negative effects of adverse climate shocks on economic outcomes are well-known, their long run institutional impact is still poorly understood. To clarify this issue, we test the idea that adverse climate conditions push elites unable to commit to future transfers to grant more inclusive political institutions to nonelites endowed with complementary inputs. These reforms convince the nonelites that a sufficient part of the returns on joint elite-nonelite investments will be shared via public good provision and, thus, to cooperate. Consistent with these predictions, data on a panel of 38 most agricultural countries observed over the 1960-2018 period entail that the severity of droughts has a negative and short run direct effect on agricultural output, whereas its institutional impact is positive and persistent. Moreover, reforms towards more inclusive political institutions shift the allocation of tax revenues from military to education expenditures and, thus, exert a positive and delayed impact on agricultural output. These results suggest that policymakers should: (a) consider short and long run effects of climate change; (b) calibrate climate-related policies according to the degree of complementarity of group-specific input/skills; (c) avoid the mechanical transplantation of strong nonelites' political rights in all developing countries.