Examining the Effects of Climate Change Shocks on Macroeconomic Variables in Iran’s Agricultural Sector: Application of (SPEI)

Articles in Press

Document Type : Original Research

Authors
koohsar khaledi
Seyed Mohammad Fahimifard
Agricultural Planning, Economic and Rural Development Research Institute (APERDRI), Tehran, Islamic Republic of Iran.
Abstract
Climate change poses significant challenges to Iran's agricultural sector, characterized by high evapotranspiration rates and increasing climatic variability. This study examines the dynamic effects of climate change shocks on key macroeconomic variables in Iran's agriculture using the Structural Vector Autoregression (SVAR) model. Unlike conventional approaches that rely on raw temperature or precipitation data, this research employs the De Martonne Climate Aridity Index and the absolute value of the Standardized Precipitation Evapotranspiration Index (|SPEI|) to capture the magnitude of climate deviations from normal conditions—whether drought or extreme wetness—both of which are detrimental to Iran's semi-arid agriculture. The analysis is based on quarterly data spanning the period 1988–2023, with annual macroeconomic variables temporally disaggregated using the Denton Proportional Method. The results reveal that a one-standard-deviation increase in |SPEI| (representing increased climate variability) reduces agricultural value added by a maximum of 0.319 units, net capital stock by 0.272 units, agricultural labor by 0.243 units, and trade openness by 0.197 units, with peak impacts occurring in the third quarter following the shock. These findings underscore the significant adjustment lags in Iran's agricultural sector and highlight the urgent need for anticipatory policy measures. It is recommended to implement index-based crop insurance linked to |SPEI| thresholds (e.g., automatic payouts when |SPEI| exceeds 1.5), develop climate-risk financial products that trigger automatic payouts during extreme climate events, and promote drought- and flood-resistant crop varieties alongside modern climate monitoring technologies.
Keywords
Agriculture
Climate change
De Martonne climate aridity index
Iran
Standardized Precipitation Evapotranspiration Index (SPEI)
Subjects
1.   Acharya, S. P., & Bhatta, G. R. (2013). Impact of climate change on agricultural growth in Nepal. NRB Economic Review, 25(2), 1–16.
2.   Albert, C., Bustos, P., Mestieri, M., & Ponticelli, J. (2025). The Effects of Climate Change on Labor Reallocation. Tech. rep. Working paper.
3.   Alfani, F., Pallante, G., Palma, A., & Talhaoui, A. (2025). When the Rain Stops Falling. Effects of Droughts on the Tunisian Labour Market. Journal of African Economies, 34(3), 344-370.
4.   Alpysbayeva, D., Bazarkulova, D., de Beurs, K., & Sagyndykova, G. (2026). Impact of Climate Change on Labor Market Dynamics: Evidence from Kazakhstan. Agricultural Economics, 57(1), e70073.
5.   Bilal, A., & Känzig, D. R. (2024). The macroeconomic impact of climate change: Global vs. local temperature (NBER Working Paper No. w32450). National Bureau of Economic Research.
6.   Chandio, A. A., Jiang, Y., Rehman, A., & Rauf, A. (2020). Short and long-run impacts of climate change on agriculture: Empirical evidence from China. International Journal of Climate Change Strategies and Management, 2(2), 201–221. https://doi.org/10.1108/IJCCSM-05-2019-0026
7.   Chen, X., Wang, L., Cao, Q., Sun, J., Niu, Z., Yang, L., & Jiang, W. (2024). Response of global agricultural productivity anomalies to drought stress in irrigated and rainfed agriculture. Science China Earth Sciences, 67(11), 3579-3593.
8.   Crapart, C., Anquetin, S., Blanchet, J., & Diedhiou, A. (2025). Global projections of aridity index for mid and long-term future based on CMIP6 scenarios. EGUsphere, 2025, 1-32.
9.      Denton, F. T. (1971). Adjustment of monthly or quarterly series to annual totals: An approach based on quadratic minimization. Journal of the American Statistical Association, 66(333), 99–102.
10.  Enders, W. (2008). Applied econometric time series. John Wiley & Sons.
11.  Farajzadeh, Z., Keshavarz, A., & Letafat, N. (2025). Effect of climate variables on the value added of Iranian agriculture. Agricultural Economics, 19(1), 47–75. https://doi.org/10.22034/iaes.2024.2024497.2050 [In Persian]
12.  Guo, K., Li, Y., Zhang, Y., Ji, Q., & Zhao, W. (2023). How are climate risk shocks connected to agricultural markets?. Journal of Commodity Markets, 32, 100367.
13.  Habib-ur-Rahman, M., Ahmad, A., Raza, A., Usama Hasnain, M., Alharby, H. F., Alzahrani, Y. M., Bamagoos, A. A., Rehman Hakeem, K., Ahmad, S., Nasim, W., Shafaqat, A., Mansour, F., & Sabagh, A. (2022). Impact of climate change on agricultural production: Issues, challenges, and opportunities in Asia. Frontiers in Plant Science, 13. https://doi.org/10.3389/fpls.2022.925548
14.  Hamilton, J. D. (1994). Time series analysis. Princeton University Press.
15.  Heckelei, T., & Jafari, Y. (2026). Dynamic impacts of weather shocks and trade network structures on import flows for staple commodities. Food & Agriculture Organization.
16.  Horn, B., Ferreira, C., & Kalantari, Z. (2022). Links between food trade, climate change and food security in developed countries: A case study of Sweden. Ambio, 51(4), 943-954.
17.  Khalifa, J. (2025). The impacts of climate change, agricultural productivity, and food security on economic growth in Tunisia: Evidence from an econometrics analysis. Research on World Agricultural Economy, 577–599.
18.  Kouakou, P. A. K. (2024). Impacts of climate change on agricultural value added in Ivory Coast. Journal of Innovations and Sustainability, 8(3), 9–9.
19.  Mazzoleni, M., Di Baldassarre, G., Hagström, A., & Raffetti, E. (2026). Drought is associated with human migration in agriculture-dependent middle-income countries. Communications Earth & Environment, 7(1), 248.
20.  Mendelsohn, R. (2008). The impact of climate change on agriculture in developing countries. Journal of Natural Resources Policy Research, 1(1), 5–19. https://doi.org/10.1080/19390450802495882
21.  Morad, W., Islam Molla, R., Bin Mokhtar, M., & Raquib, A. (2010). Climate change and agricultural growth: An examination of the link in Malaysia. International Journal of Climate Change Strategies and Management, 2(4), 403–417. https://doi.org/10.1108/17568691011089927
22.  Mwinjuma, M., Wang, R., Mtupili, M., & Twaha, M. (2025). Comparisons of SPI and SPEI in capturing drought dynamics: A Global assessment across arid and humid regions. Atmospheric Research, 108475.
23.  National Meteorological Organization. (2025). Climatic situation of the country in the solar year 2024. Ministry of Roads and Urban Development. https://ndc.irimo.ir/far/wd/10212 [In Persian]
24.  Ochieng, J., Kirimi, L., & Mathenge, M. (2016). Effects of climate variability and change on agricultural production: The case of small-scale farmers in Kenya. NJAS: Wageningen Journal of Life Sciences, 77(1), 71–78.
25.  Onyeaka, H., Nwauzoma, U. M., Akinsemolu, A. A., Tamasiga, P., Duan, K., Al‐Sharify, Z. T., & Siyanbola, K. F. (2024). The ripple effects of climate change on agricultural sustainability and food security in Africa. Food and Energy Security, 13(5), e567.
26.  Razzouki, A., Ridaoui, M., Oudgou, M., & Boudhar, A. (2025). Econometric Analysis of Climate Change Impacts on Agricultural Output in the MENA Region. Economies, 13(12), 340.
27.  Rosa, L. (2022). Adapting agriculture to climate change via sustainable irrigation: biophysical potentials and feedbacks. Environmental Research Letters, 17(6), 063008.
28.  Sax, C., & Steiner, P. (2013). Temporal disaggregation of time series (MPRA Paper No. 53389). University Library of Munich, Germany.
29.  Sinore, T., & Wang, F. (2024). Impact of climate change on agriculture and adaptation strategies in Ethiopia: a meta-analysis. Heliyon, 10(4).
30.  Statistical Centre of Iran. (2025). Quarterly national accounts from 2011 to spring 2025. https://amar.org.ir [In Persian]
31.  Vicente-Serrano, S. M., Beguería, S., & López-Moreno, J. I. (2010). A multiscalar drought index sensitive to global warming: The Standardized Precipitation Evapotranspiration Index. Journal of Climate, 23(7), 1696–1718.
32.  Wang, Y., & Pan, H. (2025). Drought Impacts on Firm Stock Returns: An Empirical Analysis Based on the NSPEI. Weather, Climate, and Society, 17(3), 575-589.
33.  Wooldridge, J. M. (2013). Introductory econometrics: A modern approach (2nd ed).
34.  Xiang, T., Malik, T. H., Hou, J. W., & Ma, J. (2022). The impact of climate change on agricultural total factor productivity: A cross-country panel data analysis, 1961–2013. Agriculture, 12(12), 2123.
35.  Yuan, X., Li, S., Chen, J., Yu, H., Yang, T., Wang, C., ... & Ao, X. (2024). Impacts of global climate change on agricultural production: a comprehensive review. Agronomy, 14(7), 1360.
Journal of Agricultural Science and Technology

Articles in Press, Accepted Manuscript
Available Online from 22 September 2026