Nature s Impact on Economic Diversification and Welfare: Theory and Evidence from an Indian Fishery.

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More than 700 Million of the globally poor depend on ecosystem services for their incomes and live in rural subsistence economies with low levels of individual specialization and aggregate diversification. Yet, individual specialization and aggregate economic diversification are fundamental elements of economic development.The aim of the proposed research is to determine the influence of environmental factors on individual specialization and aggregate economic diversification and to quantify the feedbacks between economic diversification and welfare in poor rural economies. I hypothesize, that environmental volatility and biodiversity are key factors in explaining rural economic diversification and that there are strong interrelations between economic diversification and wealth distributions.To test the effect of environmental conditions on diversification I will use empirical methods with time series and cross-sectional data from a large Indian inland fishery. Further, I will set up and calibrate a model to determine the impact of diversification on welfare and to test the welfare implications of policies concerning credit markets and resource use regulations.