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Hot and cold choices: The role of extreme temperatures in shaping industrial geographical distribution

Author

Listed:
  • Ma, Ding
  • Wang, Min
  • Li, Shuo
  • Yu, Xiumei

Abstract

This paper examines how extreme temperatures shape firm entry decisions and industrial geography. Leveraging comprehensive firm registration data from China, we identify an inverted U-shaped relationship between temperature and firm entry, while firm exit remains largely unresponsive. Mechanism analyses reveal that temperature shocks disproportionately reduce entry in labor-intensive industries within tradable sectors. This effect operates through temperature-induced labor productivity losses, whereas entry in non-tradable sectors, such as services, declines indirectly through reduced local demand from downstream industrial clients. Firms also adapt by shifting equity investments toward new firm establishments in regions with milder climates. Climate projections indicate that continued warming will substantially reshape industrial geography. These findings highlight firm location choice as a critical channel of climate adaptation and underscore the role of temperature risk in driving long-term spatial economic change.

Suggested Citation

  • Ma, Ding & Wang, Min & Li, Shuo & Yu, Xiumei, 2026. "Hot and cold choices: The role of extreme temperatures in shaping industrial geographical distribution," Journal of Environmental Economics and Management, Elsevier, vol. 137(C).
    • Handle: RePEc:eee:jeeman:v:137:y:2026:i:c:s0095069626000057
    DOI: 10.1016/j.jeem.2026.103285
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    Keywords

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    JEL classification:

    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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