Agricultural loans are critically linked with agricultural productivity. Agricultural productivity has a significant dependency on climate contingencies. This motivates us to explore the impacts of the climate change on recovery of agricultural loans caused by losses in agricultural productivity. Using panel data from 82 districts of Pakistan over a period of 21 years, i.e., 2000-2020, we estimate the sensitivity of agricultural productivity to climate change in each district. Using these sensitivities, we then apply Panel-Corrected Standard Errors (PCSE) Regression to estimate whether climate change sensitivities of agricultural productivity have any impact on the recoveries of agricultural loans across the sampled districts. We find that the impact of climate change on agricultural loan recoveries is asymmetric. Specifically, negative sensitivities to climate change result in lower recoveries, while positive sensitivities led to enhanced loan recoveries. Our study is unique as it provides evidence of the impact of climate change on agricultural productivity as well as loan recoveries in a set of district-level data. We built a unique climate change index to measure the level of climate change and also introduced a framework to measure climate change sensitivities of agricultural productivity in our sample districts. We believe that this novel approach is an addition to the existing literature on climate change. We suggest that while devising agricultural and credit policies the governments and banks must consider investing in educating the farmer's on climate change adaptation strategies.
Wahab, F; Khan, MJ; Khan, MY; Mushtaq, R
The impact of climate change on agricultural productivity and agricultural loan recovery; evidence from a developing economy
Environment Development And Sustainability