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The productivity impact of climate change: Evidence from Australia's Millennium drought

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  • Sheng, Yu
  • Xu, Xinpeng

Abstract

The economic impact of climate change has usually been estimated based on changes in average weather condition and is often measured in terms of immediate loss of output or profit. Yet little is known about the impact of extreme weather event, in particular its impact on productivity in the medium to long term. Using Australia's Millennium drought as a case of extreme weather event and applying the synthetic control method, we show that severe droughts occurred between 2002 and 2010 has brought down agricultural total factor productivity by about 18 percent in Australia over the period, contributing significantly to the country's long-term slowdown of agricultural total factor productivity growth. Our results highlight the significance of productivity impact of extreme weather events that has been overlooked when accessing the economic impact of climate change.

Suggested Citation

  • Sheng, Yu & Xu, Xinpeng, 2019. "The productivity impact of climate change: Evidence from Australia's Millennium drought," Economic Modelling, Elsevier, vol. 76(C), pages 182-191.
    • Handle: RePEc:eee:ecmode:v:76:y:2019:i:c:p:182-191
    DOI: 10.1016/j.econmod.2018.07.031
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    Cited by:

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    2. Robert G. Chambers & Simone Pieralli & Yu Sheng, 2020. "The Millennium Droughts and Australian Agricultural Productivity Performance: A Nonparametric Analysis," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(5), pages 1383-1403, October.
    3. C. A. K. Lovell, 2021. "The Pandemic, The Climate, and Productivity," CEPA Working Papers Series WP112021, School of Economics, University of Queensland, Australia.
    4. Quang-Tuong Vo & Jae-Min So & Deg-Hyo Bae, 2020. "An Integrated Framework for Extreme Drought Assessments Using the Natural Drought Index, Copula and Gi* Statistic," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 34(4), pages 1353-1368, March.
    5. Hughes, Neal & Soh, Wei Ying & Lawson, Kenton & Lu, Michael, 2022. "Improving the performance of micro-simulation models with machine learning: The case of Australian farms," Economic Modelling, Elsevier, vol. 115(C).
    6. David A. Fleming‐Muñoz & Stuart Whitten & Graham D. Bonnett, 2023. "The economics of drought: A review of impacts and costs," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 67(4), pages 501-523, October.

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    More about this item

    Keywords

    Climate change; Millennium drought; Extreme weather events; Total factor productivity;
    All these keywords.

    JEL classification:

    • Q10 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - General
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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