Financial Inclusion, Climate‐Related Shocks and Food Insecurity in Ethiopia

ABSTRACT In this study, we examine the impact of climate‐related shocks on the food insecurity status of households in rural Ethiopia and whether access to financial services can mitigate the adverse consequences of these shocks. We use panel data from the Ethiopian Socioeconomic Survey for the analysis. Climate‐related shocks are measured using self‐reported shocks as well as satellite‐based weather data. To minimise endogeneity concerns, we use a panel data correlated random effects (CRE) approach and an estimation approach that combines a control function approach with the CRE approach. We show evidence that households with an experience of climate‐related shocks are more likely to report food insecurity compared to households without such experience. However, the impact of climate‐related shocks on food insecurity is less for households that use formal savings and borrowing. The findings also show that households that have saved money, whether through formal or informal means, have a lower probability of reporting food insecurity. These results can be used to underpin insightful policy recommendations in the face of the intensifying effects of climate shocks and food insecurity and the Sustainable Development Goals' looming 2030 deadline.