China Economic Impact Study Distorts Reality

This study is an exercise in statistical manipulation that distorts reality. Many factors affect productivity such that any correlation between TFP and atmospheric temperature is inconclusive. A correlation even if present is not indicative of causation or even that one is the “primary driver” of the other.

Peng Zhang, Olivier Deschenes, Kyle Meng, Junjie Zhang. Temperature effects on productivity and factor reallocation: Evidence from a half million chinese manufacturing plants. Journal of Environmental Economics and Management Volume 88, March 2018, Pages 1-17

This paper uses detailed production data from a half million Chinese manufacturing plants over 1998–2007 to estimate the effects of temperature on firm-level total factor productivity (TFP), factor inputs, and output. We detect an inverted U-shaped relationship between temperature and TFP and show that it primarily drives the temperature-output effect. Both labor- and capital- intensive firms exhibit sensitivity to high temperatures. By mid 21st century, if no additional adaptation were to occur, we project that climate change will reduce Chinese manufacturing output annually by 12%, equivalent to a loss of $39.5 billion in 2007 dollars. This implies substantial local and global economic consequences as the Chinese manufacturing sector produces 32% of national GDP and supplies 12% of global exports.

Comments are closed.