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

counterpart, this conclusion underscores that even firms in developed regions are poorly adapted to climate shifts. Southern cities, being vital to China’s foreign trade, ought to priori- tize strategies for preparing for escalating temperatures and increasing extreme heat events. This can be accomplished by investing in climate-adaptive infrastructure and guiding firms to enhance their production environments, thereby promoting sustainable development. Our findings are in harmony with those of Zhang and Li (2023) and Burke et al. (2015), who observed that regions with warmer climates or higher economic wealth have not implemented substantial adaptive measures, with economic indicators remaining sensitive to high-tempera- ture shocks. Furthermore, aligning with the methodology of Zhang and Li (2023), we categorize cities as historically hot or cold based on their average annual temperature from 1970 to 1999. Cities that surpass the national median temperature are designated as hot, while those below it are labeled as cold, with regressions conducted for each group. Columns (3) and (4) of Table 5-Ш reveal that in historically hot cities, an upsurge in the frequency of high-temperature days is significantly associated with a reduction in export product diversity. Conversely, in historically cold cities, an increase in the frequency of low-temperature days tends to reduce export prod- uct diversity, although this effect does not achieve statistical significance. These results are con- sistent with those of columns (1) and (2), indicating that Chinese export firms have not yet

implemented significant adaptive adjustments to temperature fluctuations. As climate change intensifies and high temperatures, particularly extreme heat, become more prevalent, southern Chinese cities are poised to confront more severe repercussions. It is imperative that govern- ments and firms in these regions prioritize strategic adjustments to augment their climate adaptability. Structural factors in export diversification decline In this section, we analyze the factors that influence the reduction in the variety of product cat- egories exported by firms due to extreme temperatures. We adopt a dynamic perspective, focusing on three key aspects: product entry, survival, and exit. Specifically, the number of product categories exported by firms can be decomposed into two main components: Diversityit ¼ X pNewipt þ X pExistipt ð13Þ Where i, p, and t denote the firm, product, and year respectively. Diversity reflects the export product categories of the firms. Newipt is equal to 1 if product p belongs to a new cate- gory. Otherwise, it is equal to 0. Here, new category denotes products that were absent in the previous year but are present in the current year. Existipt is equal to 1 if the product p belongs to an existing category. Otherwise it is equal to 0. Where, exist category refers to products that exist in the previous year and continue to exist in the current year. Eq (13) expresses that the total number of product categories exported by a firm in a given year is equal to the sum of the

new categories added and the number of categories surviving from the previous year. There- fore, on the basis of Eq (13), we will examine how temperature affects the number of new prod- uct categories and the number of existing product categories in the export of firms. We replaced the dependent variables in Eq (11) with the number of newly added and exist- ing product categories in firm exports, respectively, for the regression analysis, yielding the results shown in Fig 4. Solid circles indicate the effect of temperature on newly added product categories, while triangles indicate its effect on existing product categories. The shaded area includes the 90% confidence interval, with blue and grey shading indicating the confidence intervals for newly added and existing product categories respectively. The regression results PLOS ONE Climate effects on the diversification strategy of export firms PLOS ONE | https://doi.org/10.1371/journal.pone.0308391 August 16, 2024 19 / 28