Abstract:
The agriculture sector in Sri Lanka is central to the national economy, making a
significant contribution to GDP, employment, and rural livelihoods. However, the
rising impacts of climate change are increasing the vulnerability of the agricultural
sector by reducing agricultural productivity and causing ripple effects that extend
across the broader economy. The Sri Lankan economy is heavily dependent on
climate-sensitive crops such as paddy, coconut, and tea. While previous studies in Sri
Lanka have often relied on partial equilibrium models, Computable General
Equilibrium (CGE) models have been extensively used globally to assess the broader
macroeconomic and sectoral impacts of climate change, especially in agriculture dependent economies. However, the economy-wide impacts of climate-induced
agricultural productivity decline in Sri Lanka have been evaluated in only a limited
number of studies. Hence, this study aims to address that gap by applying a static
multi-sector CGE model. A static model was chosen, as it effectively captures short term structural changes and cross-sector interactions, which are important in
analyzing agricultural climate shocks. A Social Accounting Matrix (SAM) for 2021
was used to calibrate the CGE model. Prices, exports, household income and
consumption, welfare, factor prices, and GDP composition were captured
endogenously within the model through a set of behavioral and market-clearing
equations. Two distinct climate shock scenarios were simulated. In the first case, 5%,
10%, and 20% productivity shocks were applied, and in the second, paddy-specific
shocks of 5%, 18%, and 31% were applied. According to the results, high (20%)
shocks substantially reduce agricultural exports and the GDP contribution of major
crops. Welfare and household income also decline as shock magnitude increases,
while labor prices drop more than capital prices, reflecting the labor intensity of the
agricultural sector in Sri Lanka. The non-agricultural sectors showed minimal effects,
while food manufacturing exhibited slight gains due to forward linkages. These
findings emphasize the urgent need for proactive and climate-resilient strategies to
safeguard the long-term economic stability of the country
