Extreme Weather Events and Credit Demand

Anthropogenic climate change has increased the intensity and frequency of extreme weather events. The agricultural sector is especially vulnerable, with smallholder farmers often lacking the wherewithal to cope with weather shocks. Thus, providing farmers access to credit is vital for building financial resilience in rural communities. Accordingly, this chapter analyzes the linkages between extreme weather events and apple farmers’ demand for credit in six counties of China’s Shaanxi province using a double-hurdle model. The results show that extreme weather events are associated with both an increase in the likelihood of farmers borrowing and in the amount borrowed. However, the demand for credit in response to different categories of weather events varies. Droughts do not affect credit demand, but frosts are associated with a rise in the amount borrowed and the probability of farmers borrowing. We find differences in credit demand across the six counties. Furthermore, older farmers are less likely to borrow than younger ones, and self-reported health status is negatively associated with the likelihood of borrowing – farmers who perceive themselves as healthy are less likely to borrow than those who do not.