The long-term impact of climate change on growth: Evidence from Chinese provinces

Abstract

We used more than sixty years of macroeconomic data at the province level in China in conjunction with the split/half-panel jackknife FE econometric approach to examine the impacts of climate change on China's economic growth from 1953 to 2015. Although the temperature rises less significantly than the global average and the US, we find that the temperature of 0.01° C above and below its historical norms reduces the growth of the GRP per capita by 0.2665 and 0.417 percentage points on average per year, which is much higher than the global average and the US. Surprisingly, the service sector is the most sensitive to temperature deviations compared to the agriculture and manufacturing industries. The adverse effects of temperature below the historical norms in China were adapted by reducing salary growth, increasing the number of employees and government expenditures, and improving trade openness to become less effective in more recent years. However, there is no significant evidence of adaptation application effectiveness across the provinces to the increasing temperature above its historical norms. Using four climate change estimation projects and predictions on temperatures rising, the accumulated temperature deviations above the historical average could cause 10.87 to 18.24 (28.99 to 54.74) annual GDP per capita growth percentage points under the Representative Concentration Pathways 1.9 (8.5). In other words, assuming the provincial yearly GDP per capita growth equals five percentage points on average, the total economic losses without applying any carbon neutrality policies will cause 6.82% to 12.88% of the economic losses by 2100, which is approximately 2.67-2.82 times higher than applying policies.