Climate shocks, democratization and (a culture of) cooperation

Abstract While the direct economic effects of adverse climate shocks are well known, their indirect institutional impact is still poorly understood. To clarify this, we test the idea that adverse climate shocks push time‐inconsistent elites to enact inclusive political institutions, and non‐elites to embrace strong norms of cooperation. While democratization transfers to non‐elites the power to design fiscal policies and thus assures them that they will enjoy a sufficient part of the returns on investing in farming innovations with elites, cultural accumulation delivers an intrinsic return on cooperation allowing the non‐elites' credible commitment to investment. Consistent with these predictions, data on a panel of 38 most agricultural countries observed over 1960–2018 imply that the severity of droughts has both a negative and direct effect on agricultural output, and a positive and indirect institutional impact. The latter can be decomposed in a persistent rise in the inclusiveness of the political process, which in turn shifts the allocation of the tax revenues from military to public health service expenditures, and the horizontal, oblique and vertical transmission of norms of trust and respect. Only a culture of cooperation is, in turn, significantly related, with a one‐year lag, to the agricultural output.