Addressing the effect of climate change in the framework of financial and technological development on cereal production in Pakistan

Abstract The current study examines the effect of global climate change (CO2 emissions), financial development, and technical progress (fertilizer consumption and improved seed distribution) on cereal production in Pakistan over the 1977–2014 period. The study undertakes the autoregressive distributed lag (ARDL) bounds testing approach to investigate the long-term interrelation among the variables. The outcomes of the ARDL bounds-testing approach confirmed the presence of a long-term relationship among the variables. Empirical results revealed that CO2 emissions have a negative impact on cereal production in the short-run and long-run. It means that increase in global climate change will decrease cereal production. Findings further showed that financial development has a positive impact on cereal production in both cases. It suggests that increasing financial development will enhance cereal production, which will ensure the country’s food security. In addition, technical progress has a significantly positive impact on cereal production in both cases. The dynamic OLS, fully modified OLS, and the canonical cointegrating regression estimators confirmed the robustness of the findings. Financial development is essential for sustainable agriculture production; therefore, policymakers should devise a comprehensive agriculture policy that addresses the financial needs of the agriculture sector and attracts investment. The financial institutions may use carbon financing as a tool to intervene in the financial market to generate funds for the application of cleaner production principles and the use of best practices for agriculture development and sustainable production.