A hidden risk in climate change: The effect of daily rainfall shocks on industrial activities

This paper examines the impact of extreme precipitation on Chinese industrial output and its total factor productivity (TFP) using data from the annual survey of industrial firms (ASIF) and daily weather data. The findings demonstrate a significant reduction in industrial firm output as a result of precipitation, with extreme daily precipitation decreasing output by approximately 1.22%. We provide an explanation for this precipitation-industrial output relationship from four perspectives: per capita wages, labor productivity, inventory, and depreciation. The effects of extreme precipitation are more pronounced in high-income and high-precipitation regions, as well as among foreign firms and low-technology firms. Our research suggests that extreme daily precipitation poses a serious obstacle to the development of the manufacturing industry. These results are crucial for understanding the economic impact and concealed costs of climate change, highlighting that extreme precipitation should be recognized as one of the primary sources of damage associated with climate change in the future.