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

processing trade firms are likely to reduce the variety of their export products when faced with extreme temperature events, whether hot or cold. This trend is less pronounced for general trade firms, which seem more inclined to maintain a diversified product strategy under cold temperature conditions. However, under high temperature conditions, general trade firms also suffer negative effects, but statistically, this is only evident at the 10% significance level in a negative correlation with export product diversity. In terms of economic significance, the effect on processing trade firms significantly exceeds that on general trade firms. The findings suggest that compared to general trade firms, processing trade firms have a weaker capacity to adapt to adverse climatic conditions, which may lead them to make more conservative strate- gic adjustments in terms of product diversification. In contrast, general trade firms appear to have developed more effective strategies to manage climate-related operational risks. Considering the characteristics of processing trade firms mentioned earlier, we posit that the observed differences in temperature adaptability may stem from the following reasons. Processing trade firms often operate on lower profit margins, offer lower wages, and allocate relatively limited resources to research and development [40]. Such constrained profitability might restrict their ability to invest in climate adaptation measures, such as creating suitable working environments for workers or adjusting work schedules to accommodate temperature

fluctuations. Moreover, their minimal investment in R&D could suggest a limited capacity for innovation in climate change adaptation technologies. This limitation can impede the adop- tion of new technologies and the formulation of responsive strategies, as well as restrict the firms’ flexibility to diversify their products and markets. As a result, in the face of increasingly frequent or severe extreme climatic conditions, processing trade firms may struggle to adapt their business strategies to sustain competitiveness. This challenging scenario could compel them to concentrate more on their existing, constrained product lines or markets to minimize the need for new investments and R&D. These findings highlight that processing trade firms represent a critical vulnerability in the climate adaptation of Chinese export firms. Future Table 5. (Continued) (1) (2) (3) (4) Variables Ptrade Gtrade Underdevelope Advance -7~2˚C -0.0143 -0.0636 -0.0213 0.0346 (0.031) (0.064) (0.026) (0.263) -2~3˚C 0.0070 -0.0971*** -0.0174 -0.0882 (0.025) (0.037) (0.020) (0.055) 3~8˚C 0.0236 -0.0564** 0.0007 -0.0497 (0.022) (0.028) (0.016) (0.040) 13~18˚C -0.0000 -0.0142 0.0149 -0.0292 (0.024) (0.024) (0.017) (0.032) 18~23˚C 0.0225 -0.1361*** 0.0298 -0.1737*** (0.030) (0.050) (0.023) (0.061) 23~28˚C 0.0145 -0.1174*** 0.0079 -0.1464*** (0.032) (0.042) (0.025) (0.050) �28˚C 0.0016 -0.1198*** -0.0055 -0.1475*** (0.032) (0.042) (0.027) (0.049) CV Yes Yes Yes Yes Firm FE Yes Yes Yes Yes Observations 823,240 2,192,584 1,615,926 1,395,795

R2 0.671 0.750 0.714 0.751 https://doi.org/10.1371/journal.pone.0308391.t005 PLOS ONE Climate effects on the diversification strategy of export firms PLOS ONE | https://doi.org/10.1371/journal.pone.0308391 August 16, 2024 16 / 28