The Invisible Hand of Rain in Spending: Effect of Rainfall-Driven Agricultural Income on Per Capita Expenditure in Ghana

This paper uses a nationally representative household pseudo-panel dataset for Ghana, a rain-fed agriculture economy, to investigate whether there is a positive relationship between rainfall-driven agricultural income and household per capita expenditure. By using the Two Stage Least Squares Instrumental Variable (2SLS-IV) estimator, it is found that a fall in rainfall-driven agricultural income leads to a decrease in per capita expenditure. The results show that the gender and the locality of the household head matter in the response of per capita expenditures to rainfall-driven agricultural income. Female-headed and rural households are more vulnerable to rainfall-driven agricultural income changes. The expenditure disaggregation indicates that female-headed households significantly reduce per capita non-food expenditure in times of rainfall-induced agricultural income decrease whilst the response of male-headed households focuses more on reducing per capita food and remittance expenditures.