Abstract
This study presents an application of the Ricardian approach to explore the impact of climate change on farmland values in Nepal. The Ricardian approach is estimated using a panel fixed effects model, and the outcome is compared against two separate models that account for spatial correlation: a spatial autoregressive (SAR) model; and a spatial error model (SEM). The findings suggest that Nepalese farmlands are sensitive to climate change, and this result was consistent in both the non-spatial and the spatial frameworks. The inclusion of the spatial effects, however, revealed the presence of positive spatial autocorrelation and produced conservative estimates of climate change impacts. The net effect of annual increases in average temperature was negative; while the net effect of higher annual average precipitation was a positive outcome on farmland values. In particular, we found that the marginal effect of every degree increase in average annual temperature was Rs.180 /hectare ($1.80) reduction in farmland values. Likewise, for rainfall, it was found that 1 mm increase in average annual rainfall would positively affect farmland value by Rs.225/hectare ($2.25). Finally, the study findings suggested that extreme weather events could also impact the agricultural productivity and the farmland values in Nepal. Key words: Climate change, ricardian approach, spatial panel data analysis, Nepalese agriculture, environmental valuation.
Highlights
Climate change is emerging as a significant threat facing the humanity in the 21st century
It should be noted that we ran our final analysis with only the 100 original primary sampling units3 (PSUs), and the results did not substantially change from the findings presented in this paper. 5 In order to minimize the distance between PSU and weather stations, we extracted those weather stations that were within 10 km radius from a particular PSU of interest
While the significance of most variables were comparable in all three models, the magnitudes of the estimated climate coefficients were smaller in spatial models than the non-spatial fixed effect model
Summary
Climate change is emerging as a significant threat facing the humanity in the 21st century. There is a consensus among researchers that variations in land and water regimes through changes in climate might pose a significant challenge to the natural and human systems (Intergovernmental Panel on Climate Change (IPCC), 2007, 2014). Agriculture is one area that is highly sensitive to climate due to its reliance on weather patterns and climate cycles for productivity. One country that is predominantly dependent on agriculture is Nepal. Nepal is a tiny developing country located in South Asia between India and China.
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