Heat waves and the Italian agricultural sector: An empirical study of economic impacts.

The year 2024 has set a new record for maximum temperatures, surpassing pre-industrial levels by 1.5°C. The global temperature increase has led to a rise in extreme weather events, which have severe disruptive effects on nature, society, and the economy. Among these events, heatwaves have become increasingly frequent across Italy in recent years. The consequences of such extreme weather are wide-ranging, with significant socio-economic impacts on populations and key economic variables. After processing temperature data from the ERA5 ECMWF database to construct a measure of the annual inciden- ce of heatwaves, a two-level analysis was conducted to better understand the effects of heatwaves on productivity in the Italian agricultural sector. Consistent findings across various models provide robust evidence of the negative impact of prolonged exposu- re to extreme heat on agricultural productivity, both at the provincial (NUTS-3) level, measured by Gross Value Added (GVA) at constant prices sourced from the ARDECO database (from 1990 to 2023), and at the firm level (from 2014 to 2023), where profitability was measured using the Profit per Employee (PPE) variable sourced from Orbis. The negative effects become more severe as the annual number of heatwaves increases. At the provincial level, exposure to 15–40 annual heatwaves lowers Gross Value Added by 3.45 million euros, while more than 40 heatwaves result in a decline of 6.31 million euros, both compared to a scenario without heatwaves. At the firm level, these exposure ranges lead to a decrease in Profit per Employee by 5.13 thousand euros and 11.08 thousand euros, respectively. The growing frequency of heatwaves underscores the urgent need for climate adaptation policies to mitigate economic impacts, especially in vulnerable sectors like agriculture.