Can foreign aid mitigate the effects of climate variability in agriculture? Evidence from the low-and middle-income countries

This paper examines the effectiveness of foreign aid in the agricultural sector in the presence of climate variability. Climate variability, measured by fluctuations in temperature and precipitation rates, can disrupt production and, in particular, lower agricultural productivity and access to food. On the other hand, foreign aid in agriculture is targeted towards low- and middle-income countries to increase people's welfare and strengthen governments' development goals. Using data from 53 countries during 1990–2019, this study examines the effect of different types of agricultural aid on agricultural labour productivity in the presence of climate change shocks. In particular, four distinct channels of agricultural aid are considered, viz. Education, R&D, Policy, and Services. We find that R&D aid is the most effective channel in mitigating the adverse effects of climate variability. These results are robust to endogeneity biases and alternative estimation techniques. Findings from this study have substantial policy implications, as we show that aid effectively mitigates the impacts of climate change and presents sustainable growth opportunities for poor and developing countries.