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Temperature Effects on Productivity and Factor Reallocation: Evidence from a Half Million Chinese Manufacturing Plants

Author

Listed:
  • Peng Zhang
  • Olivier Deschenes
  • Kyle C. Meng
  • Dr. Junjie Zhang

Abstract

This paper uses detailed production data from a half million Chinese manufacturing plants over 1998-2007 to estimate the effects of temperature on firm-level total factor productivity (TFP), factor inputs, and output. We detect an inverted U- shaped relationship between temperature and TFP and show that it primarily drives the temperature-output effect. Both labor- and capital- intensive firms exhibit sensitivity to high temperatures. By mid 21st century, if no additional adaptation were to occur, it is projected that climate change will reduce Chinese manufacturing output annually by 12%, equivalent to a loss of $39.5 billion in 2007 dollars. This implies substantial local and global economic consequences as the Chinese manufacturing sector produces 32% of national GDP and supplies 12% of global exports.

Suggested Citation

  • Peng Zhang & Olivier Deschenes & Kyle C. Meng & Dr. Junjie Zhang, 2017. "Temperature Effects on Productivity and Factor Reallocation: Evidence from a Half Million Chinese Manufacturing Plants," Working Papers id:12261, eSocialSciences.
  • Handle: RePEc:ess:wpaper:id:12261
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    More about this item

    Keywords

    climate change; productivity; manufacturing; China; Chinese manufacturing plants; effects of temperature; total factor productivity (TFP); factor output; factor input; U- shaped relationship; capital- intensive firms; global economic consequences; Chinese manufacturing sector; GDP; global exports.;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth

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