This research combined global climate, crop and economic models to examine the economic impact of climate change-induced loss of agricultural productivity in Pakistan. Previous studies conducted systematic model inter-comparisons, but results varied widely due to differences in model approaches, research scenarios and input data. This paper extends that analysis in the case of Pakistan by taking yield decline output of the Decision Support System for Agrotechnology Transfer (DSSAT) for CERES-Wheat, CERES-Rice and Agricultural Production Systems Simulator (APSIM) crop models as an input in the global economic model to evaluate the economic effects of climate change-induced loss of crop production by 2050. Results showed that climate change-induced loss of wheat and rice crop production by 2050 is 19.5 billion dollars on Pakistan’s Real Gross Domestic Product coupled with an increase in commodity prices followed by a notable decrease in domestic private consumption. However, the decline in the crops’ production not only affects the economic agents involved in the agriculture sector of the country, but it also has a multiplier effect on industrial and business sectors. A huge rise in commodity prices will create a great challenge for the livelihood of the whole country, especially for urban households. It is recommended that the government should have a sound agricultural policy that can play a role in influencing its ability to adapt successfully to climate change as adaption is necessary for high production and net returns of the farm output.

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To demonstrate the impact of informal economy on the official money multiplier in currency supply, we present an extension of the basic money multiplier model. The influence of economic policies may differ if they are based only on official statistics without considering the informal sector. Since most of the activities in informal sector are hidden from authorities, it is widely assumed that these activities are based on cash transactions, a part of total currency that cannot be attracted towards deposits due to the holder’s fear of prosecution and taxation, etc. Therefore, it is expected that such currency holdings can give biased results by playing a role in the money multiplier, a phenomenon that is usually ignored while attempting to alter money supply. The article also indicates that because of informal sector, the currency deposit ratio in the money multiplier is smaller than expected (depending on size of the informal sector), leading to a larger multiplier effect. JEL Codes: E26, E51, O17

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