Macroeconomic impacts of changes in land use in an agricultural-commodity exporting country: the case of Argentina, 2003–23

Climate change and environmental degradation pose significant risks to commodity-dependent developing economies, yet their macroeconomic and financial implications remain underexplored. We use an environmental stock-flow consistent model to examine how land-use changes driven by agricultural expansion and intensification impact balance-of-payments dynamics, wage and price inflation, and financial stability in agricultural commodity-exporting countries. Exchange rate devaluations and increases in commodity prices boost agricultural output and export revenues, but also lead to increased carbon dioxide emissions and ecosystem degradation, ultimately reducing land productivity. These price changes translate into wage and price dynamics and impact economic activity and constrain investment, raising a policy dilemma: promoting short-term expansion of agricultural exports results in long-term environmental damage and loss of productive capacity. The analysis demonstrates that physical climate risks, such as extreme weather events, directly impact central bank reserve accumulation by disrupting agricultural exports. The impact is not restricted to the trade balance, since portfolio decisions by non-resident investors take into consideration expected dynamics in foreign exchange accumulation. Using Argentina as a case study, the research confirms that climate shocks represent a material risk to monetary policy implementation in commodity-dependent emerging market economies. Addressing these challenges from a monetary policy perspective requires a multidimensional framework, with regulatory policies (such as green credit subsidies and loan loss provisions) complementing other, more structural market developments (such as insurance and future markets) to stimulate green investment, avoid inflationary pressures and maintain banking stability