Economic effects of climate change on agricultural production and productivity in Latin America and the Caribbean (LAC)

Climate projections indicate that temperatures in Latin America and the Caribbean (LAC) will rise by between 1.6 degrees C and 4 degrees C by the end of the century while changes in precipitation levels are expected to vary significantly across the region. This article estimates the impact of climate change on total factor productivity (TFP) and production. It combines data from the University of East Anglia's Climatic Research Unit (CRU), the Intergovernmental Panel on Climate Change (IPCC), and the Food and Agriculture Organization (FAO) on 28 LAC countries for a 54-year period (1961-2014) in order to inform policy makers of the cost of output losses in the absence of viable climate adaptation strategies. We use estimates of a random-parameter stochastic production frontier (SPF) model specification to capture heterogeneity in technology and partial output elasticities across countries and unobserved environmental characteristics. Results show that change in output is mainly driven by an average annual TFP growth rate of .95%. Climate change induces significant reductions (9.03-12.7%) in productivity over the 2015-2050 period. In terms of output, these losses range from USD $14.7 to $31.4 billion dollars in the LAC region, depending on the scenario and the discount rate used.