Economic Impact of Climate Change
65 Pages Posted: 9 Dec 2020 Last revised: 12 Aug 2021
Date Written: August 12, 2021
We estimate the economic impact of climate change by exploiting variation in local temperature across suppliers of the same client. We find that suppliers experiencing a 1°C increase in average daily temperature decrease their sales by 2%. The effect is more pronounced among suppliers in manufacturing and heat-sensitive industries, which is consistent with lower labor productivity and supply when temperatures are higher. Financially constrained suppliers are more affected due to their lack of financial flexibility to adapt to changes in temperatures. We also find that episodes of extremely hot and cold weather lead to large drops in sales.
Keywords: Climate change, Climate finance, Economic costs, Firm sales, Production networks, Productivity, Financial constraints
JEL Classification: G31, G32, L11, L14, Q54
Suggested Citation: Suggested Citation