The impact of climate policy uncertainty on agricultural investments

Purpose: The agricultural sector is strategically important for sustainable development and food security. However, climate change and the increasing physical and political uncertainties that come with it put investments in this sector at risk. This study examines the relationship between climate policy uncertainty and agricultural investments in the USA from 1995-2022. Design/Methodology/Approach: Symmetric and asymmetric causality tests, as well as the Nonlinear ARDL method are used to analyze the relationships between variables. Nonlinear methods allow us to measure asymmetric effects on the dependent variable by evaluating the positive and negative changes of the explanatory variables separately. Findings: No symmetric causality relationship is found between the variables. However, there is a statistically significant asymmetric causality from the positive shock of climate policy uncertainty to the negative shock of agricultural investments. The results of the NARDL model robust this finding. Accordingly, increases in climate policy uncertainty reduce agricultural investments in the long run. Originality/Value: This study fills the gap in the literature by examining the impact of climate policy uncertainty on investments in the agricultural sector. This provides a new perspective to understand the long-term consequences of this relationship in a highly climate-sensitive area such as the agricultural sector.