Climate Change Impacts on U.S. Agricultural Total Factor Productivity

Abstract

Abstract. PROBLEM STATEMENT Total factor productivity (TFP) measures aggregate output produced per unit of aggregate input used. Thus TFP accounts for effects in total output not caused by the traditionally measured input such as labor and capital investments. When TFP grows, more output is obtained per unit of input. This brings benefits to both producers and consumers. Falling TFP, on the other hand, promises less reward for effort committed and is a harbinger of worsening economic welfare. As such, TFP is often considered as the real driver of growth within an economy, and can be taken as a measure of an economy’s long-term technological dynamism. TFP change has proven to be useful to policy makers in regulating agricultural productivity for economy growth. On average, agricultural TFP in the U.S. has grown at a rate of somewhere between 1 and 2% per year for the last half century. That growth, attributed primarily to technological advances, has led to an amazing expansion of the productive ability of the U.S. agricultural sector. This average, however, masks a remarkable instability in the growth of U.S. agricultural TFP. The causes for such instability may include technological changes, efficiency improvements introduced by producers, increased knowledge, and random shocks or fluctuations resulted from forces beyond the control of individual producers. It is not currently possible to decompose this variability into contributions from actual improvements in technical know-how and agriculture’s inherent vulnerability to climate. Not surprisingly, numerous studies have examined the effect of climate change on the U.S. agriculture. They have taken two general approaches using detailed data on weather patterns. One focuses on determining the impact of climate on a common partial productivity measure, crop yields (Schlenker and Roberts 2009; Lobell et al. 2011). Another focuses on the effect of climate on economic returns to farmers in the form of either land values or measured profitability (Mendohlson et al., 1994; Quiggin and Horowitz 1999; Deschenes and Greenstone 2007; Fisher et al. 2012). None has investigated how climate affects the overall U.S. agricultural productivity.