Exploring the impact of R&D and climate change on agricultural productivity growth: the case of Western Australia

Abstract

This article empirically examines the impact of R&D and climate change on the WesternAustralian Agricultural sector using standard time series econometrics. Based onhistorical data for the period of 1977–2005, the empirical results show that both R&Dand climate change matter for long-run productivity growth. The long-run elasticityof total factor productivity (TFP) with respect to R&D expenditure is 0.497, while thatof climate change is 0.506. There is a unidirectional causality running from R&Dexpenditure to TFP growth in both the short run and long run. Further, the variancedecomposition and impulse response function confirm that a significant portion ofoutput and productivity growth beyond the sample period is explained by R&Dexpenditure. These results justify the increase in R&D investment in the deterioratingclimatic condition in the agricultural sector to improve the long-run prospects ofproductivity growth.