Changes in rainfall, agricultural exports and reserves: macroeconomic impacts of climate change in Argentina

ABSTRACT

This paper studies a long-term manifestation of physical risks of climate change (namely, changes in rainfalls) and its macroeconomic impacts in a developing country such as Argentina. We document a downward trend in rainfalls in the main agricultural area of Argentina, using daily data starting in 1970. We further use changes in rainfall as an instrument for the export performance of the main agricultural complexes from 2003 to 2019. Using an instrumental variable approach, we study the impact of changes in rainfall on foreign exchange reserves, controlling for economic activity, capital flows and debt repayments. We find that drops in rainfall in January (mainly) and February are significantly associated with lower reserve accumulation by the central bank. This result is robust to several specifications.

KEYWORDS:

• Climate change
• rainfalls
• agricultural exports
• foreign exchange reserves
• central banks

JEL CLASSIFICATION:

• E50
• F18
• F31
• O24
• Q17
• Q58

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 For a review of modelling approaches, see Hertel (2018).

Additional information

Funding

We appreciate the comments and suggestions of Andrés Abascal, Yannis Dafermos, Annina Kaltenbrunner, Anne Löscher, Pierre Monnin, Gabriel Montes-Rojas, Maria Nikolaidi, Ivan Weigandi, as well as an anonymous referee. This research has been funded by the International Network for Sustainable Financial Policy Insights, Research and Exchange (INSPIRE Foundation). All usual caveats apply.