Climate change and firm productivity: the case of drought

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.

KEYWORDS:

• Climate change
• firm productivity
• drought
• China

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ According to Crop Prospects and Food Situation issued by Food and Agriculture Organization of the United Nations (FAO) in December 2019, China is the world’s largest rice producer..

² These industries include: agriculture (A01), forestry (A02), animal husbandry (A03), fishery (A04), the industry of agriculture, forestry, animal husbandry, and fishery services (A05), agricultural and sideline food processing industry (C13), food manufacturing (C14), the industry of wood processing and wood, bamboo, rattan, palm, grass products (C20), the industry of wine, beverage, and refined tea manufacturing (C15), and catering services (H62)..