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Abstract
This article empirically examines the impact of R&D and climate change on the Western
Australian Agricultural sector using standard time series econometrics. Based on
historical data for the period of 1977–2005, the empirical results show that both R&D
and climate change matter for long-run productivity growth. The long-run elasticity
of total factor productivity (TFP) with respect to R&D expenditure is 0.497, while that
of climate change is 0.506. There is a unidirectional causality running from R&D
expenditure to TFP growth in both the short run and long run. Further, the variance
decomposition and impulse response function confirm that a significant portion of
output and productivity growth beyond the sample period is explained by R&D
expenditure. These results justify the increase in R&D investment in the deteriorating
climatic condition in the agricultural sector to improve the long-run prospects of
productivity growth.