Climate effects on the diversification strategy of export firms: Evidence from China

RESEARCH ARTICLE Climate effects on the diversification strategy of export firms: Evidence from China Junmei ZhangID1,2, Lianying Yao1* 1 Global Institute for Zhejiang Merchants Development, Zhejiang University of Technology, Hangzhou, Zhejiang, China, 2 Institute for Industrial System Modernization, Zhejiang University of Technology, Hangzhou, Zhejiang, China * yaolianying@zju.edu.cn Abstract Using a multi-product trade model, this study investigates the impact of temperature on firms’ diversification in the export market. Using export and meteorological data of Chinese firms from 2000 to 2016, the empirical results confirm an inverted U-shaped relationship, implying that extreme temperatures significantly reduce firms’ export product diversification. The analysis shows that extreme temperatures primarily reduce the variety of both new and existing products, with a less robust effect on product exit strategies. General trade firms are more adaptable to extreme temperatures than processing trade firms, and are likely to maintain diversified strategies. Stronger regional financial markets and higher energy con- sumption increase the adaptability of local firms to extreme temperatures. Firms have not yet adapted to local climatic norms. Furthermore, extreme temperatures also partly inhibit diversification of export destinations and relationships. The results of the study show that as climate change intensifies, leading to more frequent extreme temperatures, firms will face significant hurdles in pursuing diversified development strategies, pointing to increasing

challenges ahead. Introduction As climate change accelerates, extreme temperatures are becoming more common around the world. In 2023, Europe experienced its warmest winter on record, while the northeastern United States experienced a severe cold snap. Summer heatwaves swept across densely popu- lated countries such as the United States, China, and India. The World Meteorological Organi- zation’s 2023 Global Climate Status Report declared it the hottest recorded year on record. Extreme temperatures have widespread economic impacts, causing labor and capital outflows due to adverse working conditions [1–3], and hindering human capital accumulation through reduced productivity and health issues [4,5]. Together, these factors erode regional economic competitiveness by disrupting local industries and deterring new investments. Mitigating the physical risks of climate change is an increasingly urgent global challenge. The prevailing response to climate change is centered on ’mitigation’ and ’adaptation’. Aca- demic research emphasizes reducing emissions to mitigate climate warming, yet the analysis of PLOS ONE PLOS ONE | https://doi.org/10.1371/journal.pone.0308391 August 16, 2024 1 / 28 a1111111111 a1111111111 a1111111111 a1111111111 a1111111111 OPEN ACCESS Citation: Zhang J, Yao L (2024) Climate effects on the diversification strategy of export firms: Evidence from China. PLoS ONE 19(8): e0308391. https://doi.org/10.1371/journal.pone.0308391 Editor: Baogui Xin, Shandong University of Science and Technology, CHINA Received: March 17, 2024 Accepted: July 23, 2024

Published: August 16, 2024 Copyright: © 2024 Zhang, Yao. This is an open access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited. Data Availability Statement: All data files are available from the DOI:10.5281/zenodo.12155977. Funding: Zhejiang Office of Philosophy and Social Science #24NDQN165YBM, awarded to JZ; Zhejiang Province Public Welfare Technology Application Research Project #LQ24G030039, awarded to JZ; National Social Science Fund of China #23BZZ012, awarded to LY; This study is a result of a project funded by the Zhejiang Provincial Social Science Planning. The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript.