Climate change and urban total factor productivity: evidence from capital cities and municipalities in China

This paper studies climate change impacts on total factor productivity (TFP) in China using economic and climatic data for provincial capital cities and municipalities from 1998 to 2017. We employ a novel nonparametric quantile method to decompose historical temperature data into multiple temperature quantiles, which are then used in our regression analysis to avoid estimation bias caused by seasonal heterogeneity of temperatures across China. Specifically, we create three temperature quantiles for each city to represent their extremely high temperatures in summer, extremely low temperatures in winter, and mild temperatures in spring and fall. In general, we find that a warming climate has a significant negative impact on TFP in the long-run, while in the short term, only increases in extreme temperatures exert significant negative effects on TFP growth. However, the temperature effects on TFP vary substantially across coastal capital cities, inland capital cities, and municipalities due to their differences in geography, development levels, and political positions. Finally, our results are robust when spatial spillover, temporal lagging, and labor intensity effects are taken into account.