Working Paper

Temperature and Industrial Output: Micro-level Evidence from China

May 6, 2016 | Xiaoguang Chen, Lu Yang

This was created in partnership with Environment for Development .

Abstract

We pair a county-level panel of annual industrial output with a fine-scale daily weather dataset to estimate the responses of industrial output to temperature changes in China. We have three primary findings. First, industrial output is nonlinear in temperature changes. With seasonal average temperatures as temperature variables, industrial output increases by 0.7–1.0% for each 1°C increase in average spring temperature, and falls by 1.3–2.3% for each 1°C increase in average summer temperature. With temperature bins as temperature variables, industrial output increases linearly with temperature up to 24–27°C, and then declines sharply at higher temperatures. Second, increased summer temperature substantially reduces industrial output in low-temperature regions, while the effect of elevated summer temperature on industrial output is insignificant in high-temperature regions. Third, total industrial output in China could decrease by as much as 8.5% by 2080.