Conference Agenda

This study analyzes the impact of climate change on the profitability of Vietnamese farms and evaluates the effectiveness of their adaptation strategies while accounting for neighborhood effects. By combining climate data with Vietnam’s household survey data, we examine two adaptation strategies: adjusting the share of cultivated land allocated to specific crops (crop selection) and increasing machinery investments (mechanization). To assess these effects, we employ a two-stage estimation approach. In the first stage, we analyze farms’ crop selection and mechanization using quasi-maximum likelihood (QML) estimation and Tobit estimation, respectively. In the second stage, we examine the impact of climate variables on profitability while accounting for adaptation under neighborhood influence. Our results indicate that rising temperatures and increased rainfall negatively affect farm profitability. Additionally, we identify a significant neighborhood effect, where a crop switching behavior indirectly influences individual farms through spillover effects. Regarding adaptation, we find that increasing the share of specialty crops and fruits (relative to rice) and investing in machinery enhance profitability. Using these estimation results, we simulate profitability changes under future climate projections. We find that climate change exerts a negative impact on farm profitability; however, adaptation strategies help mitigate this effect.