Do natural disasters change savings and employment choices? Evidence from Pakistan

We investigate the economic response of rural households to natural disasters in Pakistan. In particular, we explore to what extent households adjust their savings, and income strategies in response to floods. Using a detailed panel dataset that was assembled concurrently with two major flood events, we find evidence of an economic response, although adjustments appear to be temporary: affected farmers move away from agriculture as an immediate response to floods, but they return within a year. Although flood exposure lowers savings, adjustments in income strategies help farmers to overcome immediate losses and initiate recovery: flood affected households allocate a significantly higher portion of their post-flood income than unaffected households to replenishing livestock and seeds. The findings have policy implications in terms of strategies to develop nonfarm employment opportunities and financing economic migration to reduce income vulnerability.