The Impact of Temperature Changes on International Trade

Abstract The irreversible trend of rising temperatures is accelerating the reshaping of the international trade landscape. This study empirically examined the impact of temperature variation on the scale of international trade using data on Chinese listed firms' import and export and annual temperature changes in Chinese cities and trade partners from 2000 to 2016. The results indicated that temperature changes in firms' headquarter cities and in trade partners were significantly and negatively associated with the scale of imports and exports. Firms' operational capabilities in home country and meteorological disasters in trade partners were key channels through which temperature variation affected trade outcomes. The negative effects of temperature fluctuations in both locations were stronger for heat‐sensitive firms, non‐state‐owned firms, firms with high research and development investment, and firms trading with low‐income partners. These findings contribute to a deeper understanding of the relationship between climate volatility and international trade.