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The Productivity Impact of Global Warming: Firm-Level Evidence for Europe

Author

Listed:
  • Nicola Gagliardi

    (CEBRIG and DULBEA, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles)

  • Elena Grinza

    (Department of Economics, Social Studies, Applied Mathematics and Statistics, University of Turin)

  • François Rycx

    (CEBRIG and DULBEA, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles. IRES (UCLouvain))

Abstract
In this paper, we investigate the impact of rising temperatures on firm productivity using longitudinal firm-level balance-sheet data from private sector firms in 14 European countries, combined with detailed weather data, including temperature. We begin by estimating firms’ total factor productivity (TFP) using control-function techniques. We then apply multiple-way fixed-effects regressions to assess how higher temperature anomalies affect firm productivity – measured via TFP, labor productivity, and capital productivity. Our findings reveal that global warming significantly and negatively impacts firms’ TFP, with the most adverse effects occurring at higher anomaly levels. Labor productivity declines markedly as temperatures rise, while capital productivity remains unaffected – indicating that TFP is primarily affected through the labor input channel. Our moderating analyses show that firms involved in outdoor activities, such as agriculture and construction, are more adversely impacted by increased warming. Manufacturing, capital-intensive, and blue-collar-intensive firms, compatible with assembly-line production settings, also experience significant productivity declines. Geographically, the negative impact is most pronounced in temperate and mediterranean climate areas, calling for widespread adaptation solutions to climate change across Europe.

Suggested Citation

  • Nicola Gagliardi & Elena Grinza & François Rycx, 2024. "The Productivity Impact of Global Warming: Firm-Level Evidence for Europe," LIDAM Discussion Papers IRES 2024010, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvir:2024010
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    More about this item

    Keywords

    Climate change; Global warming; Firm productivity; Total factor productivity (TFP); Semiparametric methods to estimate production functions; Longitudinal firm-level data;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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