Regional heterogeneity in the impacts of drought in China

Droughts pose a critical global challenge, threatening food security, water resources, and economic stability. In large, ecologically diverse countries like China, understanding how droughts disproportionately affect economies at both national and subnational scales is vital, as regional vulnerabilities can exacerbate broader socioeconomic disruptions. However, previous research has rarely analyzed drought impacts comprehensively at both national and regional levels, limiting the ability to capture the full extent of economic heterogeneities and design effective mitigation strategies. This study examines regional heterogeneities in drought impacts across China, aiming to identify how different regions respond to drought-induced shocks and inform targeted policy interventions. Using a Structural Vector Autoregression (SVAR) model with sign restrictions, the analysis reveals that while droughts modestly reduce national output, regional impacts vary significantly. Areas heavily reliant on agriculture, those with diverse vegetation ecosystems, and regions with underdeveloped infrastructure face the most severe economic consequences. Supply-side sectors, particularly agriculture, suffer significant productivity losses, driving sharp increases in national food prices. Accommodation and transportation costs also show prolonged inflationary trends, indicating persistent secondary economic effects. To enhance resilience, this study advocates for region-specific strategies in resource allocation and policy-making. By aligning policies with each region's unique economic vulnerabilities and ecological traits, governments can more effectively mitigate the adverse effects of climate-induced droughts.