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Chinese Manufacturing May Be Put at Risk.

To date, most empirical evidence on climate change impacts has focused on the agricultural sector. Little is known about the effects on, say, manufacturing in, say, China, which is in many ways "the factory of the world."

In a paper published in the Journal of Environmental Economics and Management, researchers at the University of California, Santa Barbara, contend that climate change will lower output dramatically for the Chinese manufacturing sector.

Using detailed 10-year production data from 500,000 Chinese manufacturing plants, the research team estimated the effects of temperature on firm-level productivity as well as factor inputs and output. They predict that, by the middle of the 21st century, if no additional adaptations occur, climate change will reduce annual Chinese manufacturing output by 12%--equivalent to a loss of $40,000,000,000.

With the Chinese manufacturing sector producing 32% of national gross domestic product, this effect is equivalent to a four percent drop in overall Chinese GDP annually. Further, given that China's manufacturing sector supplies 12% of global imports, the worldwide economic consequences may be substantial.

"Previous work has largely focused on how climate change may affect economic activity by lowering the productivity of workers," says coauthor Kyle Meng, assistant professor of environmental economics. "It is well documented that, when it's hot, people work less productively."

The paper points to the effects of temperature on the productivity of capital as well. That is, increasing temperatures not only make workers less productive, they make machines operate less well.

"In one particularly striking result, we separately examine temperature sensitivity between low- and hightech industries in China," explains Olivier Deschenes, professor of economics. High-tech industries include those that produce medical supplies and aerospace and computer equipment.

"We typically think of these sectors as being capital intensive with indoor production facilities that tend to operate with air conditioning," notes Deschenes. "We find that these industries are just as sensitive to extreme temperature as low-tech industries."

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Title Annotation:GLOBAL WARMING
Publication:USA Today (Magazine)
Geographic Code:9CHIN
Date:Aug 1, 2019
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