Weather shocks, adaptation and agricultural TFP

Abstract

This paper investigates the dynamic impact of weather shocks on agricultural total factor productivity (TFP) of Australian broadacre industry, by applying a Panel Error Correction model (PECM) to the data of 32 agricultural regions over the period 1978–2013. In response to weather shocks, farmers take adaptive actions by adjusting their output and input structures to alleviate weather-induced loss in productivity. Moreover, farmers in regions with the least favorable climate condition are found to adapt to weather shocks more rapidly than those in regions with more favorable climate condition. Our finding highlights the importance of public policies to encourage farmers to improve adaptive capacities in the events of weather shock. Show more