Ruhr Economic Papers

Ruhr Economic Papers #905

At Boiling Point: Temperature Shocks in Global Business Groups

by Michael Themann

RWI, 04/2021, 27 S./p., 8 Euro, ISBN 978-3-96973-046-1 DOI: 10.4419/96973046



This paper investigates the impact of temperature on operating revenue as a measure of economic output for more than a quarter of a million business group firms operating in 32 countries. For this purpose, we construct a novel global dataset that combines information on firm financials, ownership and location with global data on heat and precipitation from 2002 to 2012. The temperature-output-relationship takes a non-linear shape, with particularly strong negative effects at high temperatures. On average, an additional day with temperature above 32°C decreases annual operating revenue by 1.3%. This effect is driven by firms that operate in countries with relatively hot climates, i.e. average yearly temperature above 13°C. We then assess if shocks propagate within firm networks with exposure to these countries. We find that the weighted local shocks from subsidiaries translate into an on average drop in annual headquarter operating revenue by 4.2% per additional heat day. The estimates suggest that, under future warming, specific business group production networks might be severely impacted by heat-induced output losses.

JEL-Classification: D22, F23, Q54

Keywords: Climate change; temperature extremes; multinational corporation