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

findings have significant practical implications for enhancing firms’ export market diversity and competitiveness and promoting climate adaptability among firms and society. Our research uncovers that temperature shocks, both high and low, are associated with a diminution in the variety of export products among firms. Specifically, for a prototypical firm, an increment of one day with temperatures below -2˚C is correlated with a decrement of 0.22 in the count of export product categories, aggregating to a yearly reduction of 2.94 categories. Similarly, an increment of one day with temperatures at or above 28˚C results in a 0.09 decrease, culminating in an annual reduction of 4 categories. These results demonstrate robustness after accounting for endogeneity concerns, utilizing alternative methodological approaches, addressing outlier effects, refining the hierarchy of standard error clustering, and reconfiguring temperature bins through diverse methodologies. By dynamically decomposing products, our findings indicate that extreme temperature shocks reduce the number of export product varieties primarily by decreasing the number of new and continuing product varieties. However, the exit of products does not emerge as a predominant catalyst. Positive deviations from the optimal temperature marginally enhance product exits, thus diminishing export product diversity. In contrast, negative deviations do not incite product exits and exert a dampening influence under certain temperature conditions. Furthermore, we also find that

temperature exhibits an inverted U-shaped relationship with both the number of export desti- nation countries and the number of export relationships. Upon delving deeper into the types of firms that exhibit climate adaptability, our research indicates that general trade firms are more resilient to extreme temperatures compared to pro- cessing trade firms. This enhanced resilience may stem from their robust profitability, elevated wage structures, and substantial investment in research and development (R&D), which col- lectively enable them to furnish superior working conditions and allocate resources towards climate adaptation initiatives. Firms located in regions with developed financial markets dem- onstrate greater adaptability to extreme temperatures. However, a higher level of economic development in a city does not necessarily enhance firms’ adaptability unless accompanied by high energy use. Finally, our findings suggest that firms have not yet fully adapted to the local climate conditions, implying that climate adaptation strategies are not integrated into firms’ decision-making frameworks. Furthermore, there may be an absence of adequate climate adaptation infrastructure within certain cities. This disparity is particularly pronounced in southern Chinese cities, which play a pivotal role in export trade and are frequently subjected to high temperatures. Despite this, the firms in these regions have not demonstrated a suffi- cient level of adaptability to thermal extremes. The study has some limitations that need to be further explored in the future. Firstly, our

empirical study is constrained by the scope of available data, which encompasses the period from 2000 to 2016 and represents the most recent and extensive dataset of firm-level export information in China. However, given the rapid development of digital technology and artifi- cial intelligence, it is worth exploring whether the conclusions of this study remain valid or have been subject to considerable alteration. Future research would be enriched by accessing more current and granular data, allowing for a deeper investigation into these phenomena. Research efforts could concentrate on evaluating recent data to discern whether the influence of prevailing extreme temperatures has been exacerbated or ameliorated through the digital technology revolution or advancements in artificial intelligence. Undertaking such an updated analysis would not only deepen our comprehension of the impact of climate change but also guide the development of strategies that harness contemporary technology to adapt to these shifts. Secondly, our study shows that extreme temperatures affect firms’ diversification strate- gies and that certain factors could potentially augment firms’ adaptability to temperature changes, thereby reducing the impact. Future research could further systematically investigate PLOS ONE Climate effects on the diversification strategy of export firms PLOS ONE | https://doi.org/10.1371/journal.pone.0308391 August 16, 2024 24 / 28