Adaptive capacity and subsequent droughts: evidence from Ethiopia

We estimate the impact of subsequent droughts on the revenues of farmers in Ethiopia factoring in their adaptive capacity. We find that after the first drought, there is no significant difference in the revenue of the farmers who experienced a drought, as compared to those who did not. However, there is a loss in revenue after the second drought, specifically for those farmers that are endowed with less assets. This finding underscores that a rise in the frequency of extreme events and shocks can potentially have significant local distributional implications, with wealth as a major distinguishing factor.