Temperature and Local Industry Concentration
We use plant-level data from the US Census of Manufacturers to study the short and long run effects of temperature on manufacturing activity. We document that temperature shocks significantly increase energy costs and lower the productivity of small manufacturing plants, while large plants are mostly unaffected. In US counties that experienced higher increases in average temperatures between the 1980s and the 2010s, these heterogeneous effects have led to higher concentration of manufacturing activity within large plants, and a reallocation of labor from small to large manufacturing establishments. We offer a preliminary discussion of potential mechanisms explaining why large manufacturing firms might be better equipped for long-run adaptation to climate change, including their ability to hedge across locations, easier access to finance, and higher managerial skills.
This draft benefited from valuable comments from Viral Acharya, Tatyana Deryugina, David Molitor, Juan-Manuel Castro Vincenzi, and Karthik Sastry. Jora Li provided outstanding research assistance. Ponticelli gratefully acknowledges financial support from the Financial Institutions and Markets Research Center at Northwestern Kellogg School of Management. Any views expressed are those of the authors and not those of the U.S. Census Bureau. The Census Bureau's Disclosure Review Board and Disclosure Avoidance Officers have reviewed this information product for unauthorized disclosure of confidential information and have approved the disclosure avoidance practices applied to this release. This research was performed at a Federal Statistical Research Data Center under FSRDC Project Number 1850. (CBDRB-FY23-P1850-R10208). The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.