This paper extends Anderson and Reis (2007) on the economic effects of climate change on land uses in Brazilian agriculture in two ways. . Firstly, according to the approach proposed by Deschênes and Greenstone (2007), fixed-effects methods are applied to the panel of Agricultural Census data of Brazilian municipalities in the period 1970-1995 to estimate the effects of random year-to-year variation in temperature and precipitation on agricultural profits. Since this variation is presumed to be orthogonal to unobserved determinants of agricultural profits, the methodology offers a possible solution to the omitted variables bias problems that plague the hedonic approach adopted in previous studies. The estimated coefficients are then used to simulate the impact of the different climate change scenarios proposed by the IPCC Assessment Reports. Preliminary results indicate that climate change decrease annual profits by 19%, with considerable variation across the Brazilian regions. The Center-West region is most negatively affected, whereas the negative impacts on the South region are quite mild. We also find that the hedonic approach which is standard in the previous literature to be unreliable because it produces estimates that are not robust to different model specifications. Secondly, using the same panel data, the derived demand for agricultural land estimated and simulated by Anderson and Reis (2007) will be disaggregated for major land use categories (perennial and annual crops, planted and natural pastures, planted and natural forests, and fallow areas).
Key words: climate change, agriculture, and panel data estimation.
Science Theme: LC (Land Use and Land Cover Change)