Hot and Bothered

Environmental economists studying the impact of climate change on manufacturing in China predict substantial losses by mid-21st century.

To date, most empirical evidence on climate change impacts have focused on the agricultural sector.  Little is known about the effects on, say, manufacturing in, say, China, which is in many ways "the factory of the world."

In a new paper published in the Journal of Environmental Economics and Management, UC Santa Barbara researchers shows that climate change will dramatically lower output for the Chinese manufacturing sector.

Using detailed production data from a half-million Chinese manufacturing plants in the period 1998-2007, the research team estimated the effects of temperature on firm-level productivity, factor inputs, and output.  They predict 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.

With the Chinese manufacturing sector producing 32 percent of national gross domestic product (GDP), this effect is equivalent to a 4 percent drop in overall Chinese GDP annually.  Further, given that China's manufacturing sector supplies 12 percent of global imports, the worldwide economic consequences may be substantial.

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