European Review of Agricultural Economics Vol 48 (5) (2021) pp. 1074–1108 doi:https://doi.org/10.1093/erae/jbab039 Advance Access Publication 14 September 2021 Climate variability, innovation and frm performance: evidence from the European agricultural sector Sabrina Auci † , Nicolò Barbieri ‡ , Manuela Coromaldi § and Melania Michetti #,* † Department of Political Science and International Relations, University of Palermo, Italy; ‡ Department of Economics and Management, University of Ferrara and SEEDS (Sustainability, Environmental Economics and Dynamics Studies), Italy; § Economics Department, University of Rome ‘Niccolò Cusano’, Italy; # Division of Models and Technology for Risk Reduction, ENEA Centro Ricerche Bologna, Italy Received October 2020; fnal version accepted August 2021 Abstract It is generally accepted that adaptation to climate variability requires a technologi- cal advancement strategy. However, the innovation process has received little explicit consideration in this framework. We employ a panel endogenous switching regression model to explore whether and to what extent climate variability affects frm perfor- mance through the ability to induce the development of adaptation innovations in key resource-based sectors in Europe during the period 2007–2017. Our fndings confrm that the knowledge generation process at the heart of climate change adaptation tech- nologies enhances frm performance, especially for frms in the aquaculture and fshing sub-sectors in northern European countries. Keywords: climate variability, adaptation, innovation, patent, panel endogenous switching regression model JEL classifcation: Q1, Q16, Q54, C33 1. Introduction Recent scientifc evidence highlights that the increasing variability in meteo- climatic parameters and the increased frequency of extreme weather events are resulting in more frequent environmental disasters (IPCC, 2014). In addi- tion, they are also contributing to the depletion of natural resources, which is threatening their supply (IPCC, 2014; Hern´ andez-Delgado, 2015; Stevanovic *Corresponding author: E-mail: manuela.coromaldi@unicusano.it © The Author(s) 2021. Published by Oxford University Press on behalf of the Foundation for the European Review of Agricultural Economics. All rights reserved. For permissions, please e-mail: journals.permissions@oup.com Downloaded from https://academic.oup.com/erae/article/48/5/1074/6369798 by guest on 01 December 2021