Consumption Growth and Agricultural Shocks in Rural Madagascar

The aim of this paper is to evaluate the effect of rainfall and agricultural shocks on consumption growth in Madagascar. We are also interested in the impact of local endowments in infrastructures and social services on consumption growth. To achieve this goal, a micro model of household consumption growth is estimated thanks to household panel data collected by the Reseau des Observatoires Ruraux (ROR) between 1999 and 2004. Additional data sources include the 2001 communes census organized by the Ilo program of Cornell University. Altogether these different data sources make an unusually rich data set, at least when considered with developing country standards. We use panel data fixed effect estimation technique to remove unobserved household and community level time invariant heterogeneity. We find that production shocks have a substantial impact on consumption growth and we find sign of persistence of rainfall shocks. Roads and education seems to improve household’s consumption growth and remotness decreases it.