Asymmetric economic impacts of climate extremes on Italian agriculture: a nonlinear ARDL approach

This study investigates the asymmetric economic impacts of climate extremes on the Italian agricultural sector. drawing on annual time-series data from 1961 to 2023 sourced from FAOSTAT and the World Bank, it applies a nonlinear autoregressive distributed lag (NARDL) framework, spearheaded by Shin et al. (2014), which decomposes temperature, rainfall, and CO2 into their cumulative positive and negative partial sums to detect "hidden cointegration" that traditional linear models overlook. the analysis is motivated by Italy's acute exposure as a Mediterranean climate hotspot — ranked third globally for extreme-weather impacts in 2022 — and by ongoing reforms to its agricultural risk management, including the subsidized National Solidarity Fund and the newer mandatory "AgriCat" mutual fund. the model treats agricultural production value as a function of climate variables alongside traditional inputs (fertiliser and manure), and is validated through BDS tests for nonlinearity, an F-bounds test for cointegration, Wald tests for symmetry, and CUSUM stability checks, with a second stage re-estimating the model using maximum and minimum temperatures to isolate heatwaves and cold snaps.

The findings confirm a stable long-run relationship between agricultural production value, temperature, rainfall, and carbon emissions (F-statistic of 6.42), and reveal a sector with strong short-run resilience — the error correction term of roughly -0.61 means about 61% of any climate-related disruption is corrected within a single year. notably, the formal Wald tests fail to reject symmetry in both the short and long run across all climate variables, suggesting the direction of a shock matters less than its occurrence: Italian agriculture sits on a sensitive equilibrium optimised for a narrow climatic envelope, where any deviation — warming or cooling — lowers output, while CO2 exerts a positive "fertilisation" effect. despite this statistical symmetry, the directional coefficients show the sector is disproportionately vulnerable to negative extremes, with heatwaves, cold snaps, and droughts inflicting greater damage than the benefits from favourable shifts, and long-run growth remaining dependent on buffers like fertiliser use and CO2. the study concludes that Italian agricultural policy must shift from isolated adaptation toward comprehensive climate volatility management — prioritising all-weather mutual insurance, flexible irrigation and drainage infrastructure, heat-tolerant crop varieties, frost early-warning systems, and soil health measures. it acknowledges limitations from aggregate national data, which may mask north–south asymmetries, and from a 62-year sample that may be near the limit for detecting complex nonlinearities, pointing toward provincial-level and panel-based research as next steps.