# Impact of Climate Change, Agricultural Credit and Inflation on Cereal Crop Productivity in Ethiopia: Novel Dynamic Simulated ARDL Approach

## TL;DR

This study explores how climate change, agricultural credit, and inflation affect cereal crop productivity in Ethiopia using a new dynamic model.

## Contribution

The paper introduces a novel dynamic simulated ARDL approach to analyze the impacts on cereal productivity.

## Key findings

- CO2 emissions and inflation negatively impact cereal crop productivity in the long run.
- Agricultural credit has a positive short-term effect on productivity.
- Fertilizer use and subsidies significantly boost productivity in the long run.

## Abstract

This study examines the impact of climate change, agricultural credit, and inflation on cereal crop productivity (CCP) in Ethiopia, using time series data from 1992 to 2022. Novel Dynamic Simulated Autoregressive Distributed Lag (NDS‐ARDL) model was applied for the empirical analysis. To address the dynamic effects, impulse response functions were simulated, indicating the impact of ±10% shocks for each independent variable on CCP. The bound test results show that the variable illustrates long‐term relationships. The coefficient of error correction term is −0.67, suggesting about 67% annual adjustment towards long run equilibrium. In the long‐run, fertilizer application, cropland, and agricultural subsidy showed positive and significant contributions, while CO2 and inflation showed a negative and significant impact on CCP. Furthermore, in the short‐run, agricultural credit has a positive and significant, while inflation showed a significant negative impact on CCP. To boost long‐term agricultural productivity, government should promote use of location‐specific quality fertilizers, improved land use policy, and sustain agricultural subsidies. Additionally, financial institution and agricultural cooperatives should provide affordable credit services for farmers to support short‐term productivity gains. Furthermore, to combat the adverse impact of CO2 emissions and inflation, government should promote climate‐smart agricultural practices and implement a price control policy on essential agricultural inputs.

This study investigates the effect of climate change, agricultural credit, and inflation on cereal crop productivity in Ethiopia using time series data from 1992 to 2022. Novel Dynamic Simulated Autoregressive Distributed Lag (NDS‐ARDL) model was applied for empirical analysis. The results show that CO2 emission, fertilizer consumption, cropland, inflation, and agricultural subsidies have a long‐run relationship with crop productivity. In the short run, both inflation and agricultural credit exhibit a significant impact on crop productivity.