Climate change and firm productivity: the case of drought

Zhiyang Lin and Yan Sheng

Applied Economics Letters, 2023, vol. 30, issue 20, 2947-2957

Abstract: This paper evaluates the causal effects of climate change on firm productivity from the perspective of drought, which is a complicated climate phenomenon. Based on the panel data of agriculture-related firms in China, we present strong evidence that drought significantly reduces firm’ total factor productivity. Mechanism analysis shows that the negative effect is rooting from higher costs of equity capital, higher operation costs, and lower investment efficiency. Finally, we find that government subsidy and policy stimulating corporate innovation can help firms adapt to climate change.

Date: 2023
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DOI: 10.1080/13504851.2022.2116385

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