Research on the impact mechanism of climate risks on financial vulnerability of farmers in typical ecologically fragile regions of Northwestern China

Abstract

Against the backdrop of intensified global climate change, the increasing frequency of extreme weather events poses persistent shocks to rural areas that rely on agricultural production. However, the micro-level mechanisms through which climate risk affects household financial vulnerability in ecologically fragile areas remain insufficiently explored. Based on household survey data collected from 2,282 rural households in the Ningxia Hui Autonomous Region and Gansu Province during 2024-2025, this study constructs a multidimensional financial vulnerability index encompassing liquidity constraints, debt burden, income stability, and financial literacy, and employs OLS regression, mediation effect models, and instrumental variable methods to empirically examine the impact and transmission mechanisms of climate risk. We find that: (1) climate risk significantly exacerbates household financial vulnerability, a conclusion that holds after a series of robustness checks and endogeneity treatments; (2) mechanism analysis reveals that climate risk operates through two primary channels—reducing total household income and widening financial exclusion; (3) heterogeneity analysis shows that households in Gansu Province (where the ecological environment is more fragile), households with lower human capital, and uninsured households are disproportionately affected, whereas local weather-related publicity and extension activities can partially mitigate these negative effects. These findings highlight the need for integrated climate adaptation policies that combine income support, financial inclusion, and differentiated interventions targeting the most vulnerable groups, providing new micro-level evidence for understanding the socioeconomic consequences of climate change in ecologically fragile regions.