Climate Vulnerability and Debt: How Energy and Road Access Shape Household Coping in Pakistan

Does public infrastructure influence how people respond to climate shocks through borrowing? This study, using nationally representative household data merged with tehsil-level climate shocks, finds that rainfall shocks significantly increase the probability of household borrowing and the borrowed amount. It also shows that access to energy infrastructure significantly reduces the likelihood of household borrowing and the amount of debt. Access to road infrastructure reduces debt in normal conditions but increases it during climatic shocks. This study constructs a unique instrument, community-level access to media services, to address endogeneity in infrastructure. The heterogeneity analysis finds that poor and female-headed households face disproportionately higher debt burdens but derive greater financial protection from access to infrastructure. From a policy perspective, this study concludes that the availability of public infrastructure should be considered as a major factor in climate adaptation strategies.