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Climate Risk, Induced Technological Upgrading, and Firm Productivity

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  • Wang, Yanan
  • Wang, Yicong
  • Fang, Xian
  • Li, Hao

Abstract

This study examines the impact of climate risk on firms’ total factor productivity (TFP), with a focus on how firms adapt to climate-related disruptions through technological upgrading. Using panel data from Chinese listed firms between 2010 and 2022, we reveal that climate risk has a significantly positive influence on TFP, with extreme rainfall exhibiting the most pronounced effect. The primary mechanism involves firms adopting industrial robots to mitigate disruptions to labor input caused by climate-related shocks. This shift toward labor-saving technologies reshapes firms’ human capital structure by increasing the proportion of highly skilled and well-educated workers, enhancing labor productivity and thereby boosting TFP. This pattern is particularly evident after 2013, coinciding with China’s industrial robot adoption surge. Heterogeneity analyses further reveal amplified effects among non-state-owned, climate-sensitive, and financially resilient firms. Overall, these findings support Hicks’ induced innovation hypothesis and highlight how climate risk drives the adoption of labor-saving technologies and enhances firm productivity.

Suggested Citation

  • Wang, Yanan & Wang, Yicong & Fang, Xian & Li, Hao, 2026. "Climate Risk, Induced Technological Upgrading, and Firm Productivity," Economic Analysis and Policy, Elsevier, vol. 90(C), pages 83-100.
    • Handle: RePEc:eee:ecanpo:v:90:y:2026:i:c:p:83-100
    DOI: 10.1016/j.eap.2026.01.023
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