Assessment of the effects of extreme temperature on economic activity

Abstract

The effects of climate change on the economy are becoming increasingly evident. Based on information of all newly registered enterprises in China from 2000 to 2019, we discuss the relationship between heatwave and entrepreneurial activities at county level. Results indicate that extremely high temperatures can negatively affect entrepreneurial activities. Moreover, after considering endogeneity issues and conducting a series of robustness checks, the conclusion remains. In addition, mechanism testing shows that extremely high temperatures reduce the attractiveness of entrepreneurship by generating fiscal pressure effects, industrial dependence effects, and leading demonstration effects. Finally, heterogeneity analysis indicates that the adverse effects of extremely high temperatures will be alleviated in areas with large populations and high levels of education and healthcare. Different from the relief effect brought by the vigorous development of the secondary and tertiary industries, regions that rely more on the primary industry suffer more severe damage.