The Impact of Climate Change on Economic Growth of Agricultural Sector in Iran (Dynamic Computable General Equilibrium Model Approach)

Climate change is one of the most important issues that affect different sectors of the economy. Climate change affects precipitation and temperature and by disrupting optimal growth conditions will reduce crop yields and thus exert influence on food security and the spread of poverty in agricultural societies as a consequence.  Production sectors, labor income and institutional income are affected by changing climate, and sectors that are more interactive with the agricultural. Specific features of the agricultural sector such as the dependence on climate variables have made this sector the focal point of climate change. Based on this, the present study examines the effect of climate change on economic growth of agriculture in Iran in the form of a dynamic computable general equilibrium model (DCGE). In this research, DCGE has been used to investigate the effects of climate change (e.g. reduction of rainfall) on macroeconomic variables in Iran's agricultural sector. In order to implement the DCGE model, the social accounting matrix of 2011 has been used. The social accounting matrix represents the circular flow of funds between sectors, factors and institutions in a market economy. The social accounting matrix, which is a square matrix, is set up to equal the sum of rows and columns. The columns represent the receipts (revenue) and the rows represent the payments. Therefore, according to this definition, the total revenue of all accounts must be equal to the total expenditures of all accounts. In other words, the income of each economy is equal to the total cost of that economy. Since the social accounting matrix is ​​a descriptive tool for illustrating the details of the structure of a country's economy, it will also be considered as a tool for general equilibrium analysis as it provides information on the relationship between production sectors and the external world as well as the relationship between income and consumption.It should be noted that in the current study, the model was solved in the form of GAMS software. In order to estimate the results, it is necessary to go through two steps. At first, the model parameters are estimated to the value of the model decision variables then the solution would be equal to real values which are called calibration. Subsequently, by changing the variables related to climate change the model decision changes over the years are examined. In other words, by using the DCGE model, we studied the effects of climate change on important variables in the agricultural sector. The results of this study about the effect of precipitation on the productivity of the agricultural sector indicate that one percent change in rainfall will reduce the productivity of agriculture by 0.79 percent. Based on the results of previous studies, by 2030 rainfall in Iran will be reduced by 9%, which means rainfall will decrease by an average of 0.3% per year. Thus, the productivity of agricultural sector will decreases by an average of 0.237% per year. Accordingly, the effect of changes in agricultural productivity (technological coefficient of Cobb-Douglas function), as a result of climate change, was measured on the macroeconomic variables of the agricultural sector including production, consumption, investment, exports and import. Results show that climate change decreases the production, consumption, investment and exports, and increases the imports by 2030. The results of this study indicate that considering the amount of rainfall reduction in the 20-year horizon by 2030, the amount of production, consumption, investment and export of agricultural sector will decrease by 4.469, 5.025, 4.462 and 13.770 percent respectively, but imports in this sector will increase by 5.504 percent. Given the impacts of climate change on the macroeconomic variables in the agricultural sector, it is imperative that the government take appropriate measures to support this sector while confronting unfavorable climate. Considering role of capital in agriculture, results of this study indicate that due to the consequences of climate change in the assumed period the investment process of agricultural sector has a smaller share than other sectors. Therefore, in these circumstances, policies such as fixing the price of agricultural commodities, increasing the granting of loans by banks and other policies should be undertaken to encourage the private sector to invest in this sector.