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

et al. (2010) [11] subsequently extend to encompass multi-product firms. Their research indi- cates that firms adjust their diversification levels in response to various exogenous shocks, including technological advancements and fluctuations in international trade. Additionally, empirical studies explore how market environment changes influence firms’ diversification decisions, considering factors such as trade environment improvements [12–14], financial market development [15–17], and shifts in factor markets [18]. However, current research overlooks the impact of the physical environment, such as temperature, on firms’ export diver- sification decisions. Secondly, research on the economic impacts of temperature shocks. This body of research can be broadly divided into two areas of focus. The first area examines macroeconomic impacts, with some scholars arguing that temperature shocks significantly affect only poor regions [19,20], while others contend that such shocks reduce economic performance across both developed and developing countries [21–23]. The second area focuses on micro-level firm studies, using data from various countries to explore the effects of temperature shocks on firm output [24], profit [25,26], productivity [27–29], employment [30], exports [31,32], and product quality [33]. However, these studies have overlooked firms’ diversification behavior. Given the critical impact of diversification on firms’ internal resource allocation and interna- tional competitiveness, a systematic investigation of this area is essential.

This study makes distinct contributions to the existing literature. Theoretically, we innovatively incorporate temperature factors into the multi-product trade theory model framework of Bernard et al. (2010) [11], deducing a mathematical relationship that indicates an inverted U-shaped rela- tionship between temperature and the diversification of a firm’s export products. Empirically, our study belongs to the realm of micro-level research. Unlike existing literature that primarily focuses on firm-level performance, we are more concerned with whether temperature shocks will alter a firm’s export diversification strategy, specifically if firms will respond by changing the number of export products and export relationships. To investigate this, we use data from Chinese exporting firms. Additionally, we reveal the effect of temperature on intra-firm resource allocation from the perspective of the entry and exit of export products. Finally, we explore the climate adaptability of firms from the perspectives of export modes, regional financial development, economic develop- ment, energy usage, and the geographical location of firms. The subsequent sections of the paper are organized as follows. The Theoretical framework section outlines the theoretical model and provides the conceptual framework for our analysis. The Empirical methodology and data description section details the empirical methodology and provides a comprehensive overview of the data used. The Empirical results section pres-

ents the baseline regression and sensitivity analysis. The Climate adaptation section investi- gates the climate adaptability of firms. The Structural factors in export diversification decline section examines the structural factors influencing export product diversification under extreme temperature. The Extensive research section examines the impact of temperature on the diversification of firms’ export destinations and relationships. The Discussion section addresses the contributions of this paper to the existing literature, its limitations, and potential directions for future research. The Conclusion section summarizes the research findings and further proposing policy recommendations. Theoretical framework This study builds on the multi-product firm trade framework of Bernard et al. (2010) [11]. By incorporating temperature elements, it formulates a theoretical model to explore how temper- ature shocks affect firms’ decisions to diversify their exported products. The specific model is presented below. PLOS ONE Climate effects on the diversification strategy of export firms PLOS ONE | https://doi.org/10.1371/journal.pone.0308391 August 16, 2024 3 / 28