Economic Impacts of Climate Change on Chinese Agriculture: The Importance of Relative Humidity and Other Climatic Variables

Abstract

Climate change shifts the distributions of a set of climatic variables including temperature, precipitation, humidity, wind speed, sunshine duration, and evaporation. Previous studies have predominantly focused on temperature and precipitation only, while ignoring other climatic variables. These inter-correlated climatic variables are potential determinants for crop yields. Omitting some important climatic variables could bias the estimations of effects of climate change on agriculture. This paper explores the importance of additional climatic variables besides temperature and precipitation. Using the county-level agricultural data from 1980 to 2010 in China, we find that omitting additional climatic variables, especially humidity, dramatically overestimates the negative impacts of climate change on rice and wheat yields. The restricted model, which only includes temperature and precipitation, overestimates the negative impacts of climate change on rice yields by 57% and wheat yields by 87%. The overestimate for corn, however, is minor. These biases are likely caused by overestimating the negative impacts of higher temperatures on crop yields while simultaneously ignoring the positive impacts of the increased humidity induced by climate change. Using the preferred specification, we project that climate change will reduce the yields of rice, wheat, and corn in China by 9.31%, 4.52%, and 45.04%, or decrease the total production by 15.25 million tons, 4.15 million tons, and 58.63 million tons, respectively, by the end of this century.