# **1. Introduction**

<mark>Especially for poor people with climate‐sensitive livelihoods, weather variation can be linked to living standards. Despite significant progress in poverty reduction, around 20 percent of Vietnam’s population still lived in extreme poverty in 2010 – about 27 percent in rural areas (World Bank, 2012). At the same time, Vietnam is also particularly sensitive to increasing climate hazards, including short‐lived natural disasters and inter‐ and intra‐annual variation in weather conditions, both of which are likely to be exacerbated by climate change.</mark><sup>1</sup> <mark>Such climate hazards can affect poor and other vulnerable people through various channels, such as agriculture and ecosystems, natural disasters, and health (Hallegatte et al., 2016).</mark> Many of the poverty impacts will unfold through changes in household incomes, which are hardly quantified. Existing studies for Vietnam investigate the effects of global warming on agricultural production using crop and hydrological models (Gebretsadik et al., 2012; Van Hoang et al., 2014; Yu et al., 2010). Other work estimates the macroeconomic cost of climate change in Vietnam through sectoral impacts (Arndt et al., 2012; World Bank, 2010). Global‐level work, including Vietnam‐specific results, estimates poverty impacts of generalized climate shocks using micro‐simulation techniques and Computable General Equilibrium (CGE) modeling (Ahmed et al., 2009; Hertel et al., 2010; Rozenberg and Hallegatte, 2015). Recent studies have shown the current income and welfare impacts of short‐lived natural disasters or extreme events on Vietnamese households (Arouri et al., 2015; Bui et al., 2014; Thomas et al., 2010). More work, however, is needed to understand household‐level income effects of more subtle variation in rainfall and temperature conditions and gradual changes to this variation.

A growing number of studies in a variety of contexts investigates how observed weather conditions affect economic outcomes, mainly in an attempt to quantify the potential economic impacts of future climate change (Auffhammer et al., 2013; Dell et al., 2014).<sup>2</sup> Yet a quantification of climate change impacts remains challenging even when the current income effects of weather variation are understood. Firstly, how weather conditions will alter due to climate change is highly uncertain and even existing Global Circulation Models (GCMs) bring diverging forecasts for some regions and countries. Moreover, income 1 In line with existing literature, this paper defines weather variation to describe shorter‐run temporal variation (variation between and within years), while climate is used for longer‐term variability of conditions and changes decades (Dell et al., 2014).

2 Many of these studies are based on cross‐country analyses comparing country income and production and weather conditions at various points in time (e.g. Burke et al., 2015, 2011; Dell et al., 2012; Hsiang, 2010; Schlenker and Lobell, 2010). Another strand of the literature focuses on the impacts on agricultural profits mostly using US data at the county level (Deschênes and Greenstone, 2012, 2007; Fisher et al., 2012; Mendelsohn et al., 1994; Schlenker et al., 2006; Schlenker and Roberts, 2009). Other studies use weather variables to explain household income in order to test income effects on other variables (Feng et al., 2010; Hidalgo et al., 2010; Yang and Choi, 2007). Interesting new studies estimate current weather impacts on incomes and living conditions (Baez et al., 2015; Noack et al., 2015; Park et al., 2015). Yet results from these micro‐level studies have not yet been used to simulate income effects under future climate change.