Economic Impact of Climate Change

We estimate the economic impact of climate change by exploiting variation in local temperature across suppliers of the same client. We find that suppliers experiencing a 1°C increase in average daily temperature decrease their sales by 2%. The effect is more pronounced among suppliers in manufacturing and heat-sensitive industries, which is consistent with lower labor productivity and supply when temperatures are higher. Financially constrained suppliers are more affected due to their lack of financial flexibility to adapt to changes in temperatures. We also find that episodes of extremely hot and cold weather lead to large drops in sales.