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How could firms adapt to heat: Research on artificial intelligence application

Author

Listed:
  • Qu, Mengdie
  • He, Jingze

Abstract

Extreme heat poses growing challenges to production stability, compelling firms to implement adaptive strategies. Applying a multi-way fixed effects model, this study examines the impacts of extreme heat on firms’ adoption of artificial intelligence (AI) based on a panel data set of 2548 Chinese listed manufacturing firms from 2007 to 2021. The results show that frequent extreme heat significantly increases firms’ AI adoption, with both operational and institutional exposure exerting promoting effects. A one standard deviation increase in the 90th-percentile-threshold extreme heat exposure for office and registration location causes 0.027 and 0.030 increase in firms’ AI adoption, respectively. We also determine the moderating effects of labor costs and asset structure. Specifically, only when the minimum wage is above 1152 RMB, or the share of fixed assets is below 49.09%, will extreme heat facilitate firms’ AI adoption. Additionally, extreme heat will lead to labor scarcity and higher labor costs, constituting mechanisms promoting AI adoption. These findings highlight the importance of coordinating climate adaptation, labor market institutions, and intelligent technological upgrading to enhance firms’ resilience under rising climate risks.

Suggested Citation

  • Qu, Mengdie & He, Jingze, 2026. "How could firms adapt to heat: Research on artificial intelligence application," Economic Analysis and Policy, Elsevier, vol. 92(C), pages 206-222.
    • Handle: RePEc:eee:ecanpo:v:92:y:2026:i:c:p:206-222
    DOI: 10.1016/j.eap.2026.05.026
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    Keywords

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    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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