The effect of temperature on agricultural productivity: Econometric panel approach

Abstract

Globally, the agricultural sector constitutes a significant part of economic activities and serves as the primary source of income and employment for rural populations. Representing approximately 35% of GDP in some countries, agricultural performance is highly sensitive to climatic hazards, which can disrupt crop cycles, reduce incomes, and diminish purchasing power. These disruptions often lead to rural exodus, food insecurity, and shifts in cultural practices. Using a panel data approach and a fixed-effects (FE) model, this study evaluates agricultural potential in each country through two key indicators: the capacity to cultivate cereals and the degree of water scarcity within watersheds. The findings demonstrate that enhancing agricultural potential, particularly by addressing water scarcity, significantly improves agricultural productivity. For instance, an optimal alignment with cereal cultivation requirements can boost agricultural productivity by over 4%. Conversely, severe water scarcity can reduce productivity by up to 18.25%. Effective water resource management is therefore critical in mitigating the adverse effects of rising temperatures. Additionally, incorporating measures to address food crises is essential in strategies to combat the impacts of climate change, particularly in the most vulnerable countries.