Climate Adaptation through Trade: Evidence and Mechanism from Heatwaves on Firms' Imports

Abstract

Firms can adapt causally to heat waves by altering their import behaviors. Utilizing matched data from the China Customs Database, the China Industrial Enterprise Database, and the China National Meteorological Science Data Center, this paper investigates variations in firm-level imports on days marked by extreme heat. The study robustly establishes that, in comparison to the temperature range of [12 °C, 15 °C), extreme heat leads to increased imports by industrial firms. Additionally, for each additional day within a month featuring an average daily temperature falling within the ranges [24 °C, 27 °C), [27 °C, 30 °C), or [30 °C, +∞), monthly imports for firms increase cumulatively by 0.35%, 0.57%, and 0.56%, respectively. Notably, the impact of hot weather on non-state-owned labor-intensive firms is particularly pronounced. Our mechanistic analysis suggests that firms resort to heightened imports as a strategy for adapting to the warming climate, mitigating the elevated domestic production costs identified in existing studies. These findings bear relevance to the formulation of future “bottom-up” climate adaptation policies.