1. T HE IMPACT OF T ECHNOLOGY PROGRESS AND C LIMATE C HANGE ON S UPPLY R ESPONSE IN Y EMEN P ASQUALE L UCIO S CANDIZZO Centre for Economic and International Studies (CEIS), Faculty of Economics, University of Rome "Tor Vergata” D ANIELE C UFARI Department of Economics Law and Institutions, Faculty of Economics, University of Rome “Tor Vergata”

2. Yemen Source: WFP Yemen is one of the poorest countries in the World: GDP per capita around 600 USD Small land based: around 1.2 Mln Has of arablel and against 24 Mln of population Oil sector is dominant: around 27% of GDP and 90% of merchandise exports Scarcity of water and infrastructure

3. Yemen Agroecological zones Source: IFPRI 1. Upper Highlands (above 1,900 m): temperate, rainy summer and a cool, moderately dry winter 2. Lower Highlands (below 1,900 m): Precipitation ranges from 0 mm to 400 mm and the temperature in the summer reaches 40°C. 3. Red Sea and Tihama Plain: tropical, hot and humid climate, while rainfall averages only 130 mm annually and occurs in irregular, torrential storms. 4. Arabian sea cost: average temperature of 25°C in January and 32°C in June, with an average annual rainfall of 127 mm 5. Internal Plateau: characterized by a desert environment 6. Desert Climate change poses a significant threat to Yemen’s development, with rising temperature projections and increasing in variance of rainfall Climate-related hazards in Yemen include extreme temperatures, floods, landslides, sea level rise, and droughts.

4. Volatility increase and impact on agricultural productivity The volatility of the yield is negatively related with the productivity This negative effect, is enhanced by the increase of the variation of the rain, especially for the planting season Dependent Variable: NET VALUE OF PRODUCTION Method: Least Squares Sample: 1 90 Included observations: 90 CoefficientStd. Errort-StatisticProb. FARM_SIZE10661.471209.9978.8111530.0000 ((FARM_SIZE))^2-400.2723129.3618-3.0942080.0027 VARIABILITY OF SORGHUM YIELD-4.1099691.349881-3.0446900.0031 VARIABILITY OF WHEAT YIELD-11.383263.574484-3.1845890.0020 HIGH RAINFALL VARIATION-5380.6432233.962-2.4085650.0182 R-squared0.582808 Adjusted R-squared0.563175 Volatility increases Average Effects on farm productivity PercentagesUS dollars sorghum20%-4%-270,4176 50%-10%-676,044 100%-20%-1352,088 Wheat20%-4%-283,93848 50%-11%-709,8462 100%-21%-1419,6924

5. Example of impact Impact of Climate Change (Authors’ estimates on unbalanced Panel data) Rainfall variance has a negative effect in the winter and the fall and the variation of rainfall in the spring, a likely manifestation of climate change, has also a negative effect Dependent variable: Logarithm of maize yield Independent variables: logarithm of average quantity and variance of rainfall in critical seasons CoefficientT-statistic Constant-2-5.40 Winter average0.655.67 Spring+Fall average0.634.42 Winter+Fall variance-0.25-3.97 Variation of average spring rainfall-0.22-1.81 R-squared0.87

6. Field Survey Descriptive statistics

7. Adapting to climate change: Mathematical model

8. Econometric Results: Value Added equations

9. Adapting to climate change: option values (US $ per year)

10. Option values for introducing Drought Tolerant maize (US dollars/ha) Variable ObsMeanStd. Dev.MinMax Valueadded/ha322257.0811980.82973.7 7849.05 Val. added GM/ha322708.4982376.99488.449418.86 Difference of VA32451.4163396.164714.741569.81 Beta321.370 hurdle323.690 Underlying3215377.9613495.78502.1453477.16 Estim. investments324166.2123656.293136.0414488.09 option value 35%3211320.989935.358369.6668 39368.94 option value 55%3211958.8510495.16390.495341587.15 option value 75%3212507.1710976.37408.399843493.96

11. Adapting to climate change: Option Values (US dollars per year)

12. Option values contribution

13. CONCLUSIONS Climate Change threats provide the incentives to adapt trough a class of projects, which construct capabilities and open real options as a major source of opportunities. The options to adapt to climate change in Yemen, exist not only as a reactive and coping responses of existing farming system, but also as accumulation of capabilities to flexibly create a whole set of new farming systems The adoption of the GM technology appears to be an especially valuable option for the country to adapt to some of the harshes conditions that may be determined by climate change

14. Thank you for your attention