Assessing the Regional Costs of Drought Using Time Series and the Synthetic Control Method in Australia

Droughts can impose significant economic impacts to regional economies, yet quantifying their true costs remains a challenge. This study examines the economic impacts of the 2017–2020 drought in New South Wales (NSW), Australia, using time series analysis and the Synthetic Control Method (SCM). Our analysis highlights substantial economic losses at both the regional and agricultural levels. In the Tamworth region (a key agricultural region in NSW), value added (VA) stagnated post-2017, with cumulative losses of billions of dollars by 2035 in contrast to a good scenario unaffected by the drought. The SCM results reveal that the North West region experienced an 80% loss in cash per unit of labour, whereas the Central West and Riverina regions demonstrated greater resilience, recovering by 2022. These findings underscore the long-term economic effects of drought beyond the immediate rainfall deficit, with opportunity costs translating into lower growth prospects. The study provides critical insights for policymakers, emphasising the need for region-specific adaptation strategies that enhance resilience. By integrating forecasting and counterfactual analysis, this research offers a robust framework for assessing drought-related disruptions and informing targeted policy interventions to mitigate future economic shocks.