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The weather-economy nexus has long had close attention from scholars and policy makers as weather hazards often have a significant impact on socioeconomic outcomes of populations around the world. A continuous understanding of this relationship is vital for societies to deal well with weather risk. This is particularly important in relation to climate change, which is likely to worsen the consequences of extreme weather as their frequencies and intensities increase. This thesis consists of three essays that demonstrate the adverse effects of extreme weather episodes on the local economy, using publicly available weather data and economic data sources. The essays use Indonesia setting as a case study, but the findings are likely to also be relevant for the situation in other developing countries located in the tropics that face similar socioeconomic challenges dealing with weather risk. The first essay, having identified the robust link between drought and variations of agricultural yield in the last decades, assesses the viability of weather-index insurance (WII) scheme against drought risk for rice farmers. The results suggest WII can play a cost-effective risk reduction role in drought sensitive regions, such as Sulawesi. The timing of drought as an exogenous shock to household economic outcomes is important as indicated in the results of the second essay. The estimated adverse effects to household monthly incomes and expenditures begin in the following year the drought occurs. Besides affecting economic outcomes, extreme weather also drives variations in health-related outcomes of adult individuals. This is empirically identified in the third essay that finds a robust connection between extreme rainfall and health outcomes. The results confirm earlier findings that people face higher probabilities of being affected by diseases during adverse events, especially during dry months. Estimations on coping mechanisms suggest heterogeneous effects with respect to, for example, the role of insurance. Lastly, the third essay finds that extreme weather episodes are negatively associated with non-quantifiable subjective well-being and life satisfaction.

Three essays on the adverse effects of weather extremes on local economic and health outcomes in Indonesia