Forecasting the impacts of climate change on China’s manufacturing sector

About

Rising global temperatures are a well-known and understood impact of climate change. Surging temperatures pose a clear threat to human health and wellbeing with expected increases in heat-related mortality around the world, but layered on top of this threat is the impact of climate change at the societal level - specifically, its impact on industry and economies. Previously, most empirical evidence on climate change impacts has focused on the agricultural sector to understand implications for food security. But what does climate change mean for manufacturing? 

We approach this question in the context of China’s manufacturing sector - the largest in the world with great influence on the global economy. Using detailed production data from a half-million Chinese manufacturing plants in the period 1998-2007, we estimated the effects of temperature on firm-level productivity, factor inputs and output.

Approach

We matched weather data to 511,352 manufacturing firms across China for the years 1998-2007. Using information about a firm’s productivity on a given day, we developed an empirical model to map the relationship between daily temperatures and a firm’s annual productivity. We were then able to forecast what future productivity might look like using climate prediction data in conjunction with our model.

Key Findings

We estimated that by the middle of the 21st century, if no additional adaptations occur, climate change will reduce Chinese manufacturing output annually by 12 percent — equivalent to a loss of nearly $40 billion in 2007 dollars. Due to its sheer size, losses in the Chinese manufacturing sector can have ripple effects on consumer prices around the world.

Partners

This research was completed in collaboration with Dr. Peng Zhang of Hong Kong Polytechnic University and Dr. Junjie Zhang at Duke Kunshan University.