High Temperatures on TFP in China’s Industry Firms: Mechanisms, Heterogeneity and Regional Adaptation

This paper examines the impact of temperature shocks on the total factor productivity (TFP) of Chinese industrial firms. Using panel data of Chinese A-share-listed industrial firms from 2004 to 2021, we measure TFP via the theoretically rigorous Ackerberg-Caves-Frazer (ACF) method and adopt a nonlinear temperature bin model. We find that extreme high temperatures (≥30°C) significantly reduce firm-level TFP. Mechanism analysis reveals that extreme high temperatures primarily exert this adverse effect by compelling firms to accelerate digital transformation, which in turn generates an immediate negative impact on TFP. Heterogeneity analysis uncovers substantial variations in this mechanism within the advanced manufacturing sector, as well as significant regional disparities. Adaptation analysis demonstrates that economically developed regions exhibit stronger resilience to such temperature shocks. Our findings highlight the necessity of precise, adaptive policies, emphasizing that tailoring strategies to specific regions and industries is critical for addressing their unique challenges.